Perceptions of the threat to national security and the stock market

Abstract

This paper investigates the impact of national security concerns on equity valuations in the U.S. from 1985 to 2018. While existing literature focuses on actual events of a violent nature, our process is different. We examine the effect of continuous indices derived from media coverage of these issues. Our analysis documents that journalistic reportage can provoke significant changes in the first and, to a certain extent, the second moment of U.S. equity return distribution. These changes extend even beyond the impact of events that transpired. Furthermore, business confidence also appears to be undermined by media coverage of threats to the nation and its citizenry.