Abstract
The aim of this study is to investigate the impact of terrorism activities on five developing and developed economies and their financial markets. Five countries selected for analysis include Spain, United Kingdom, India, Pakistan, United States of America and France. The variables under consideration are terrorism activities and market return of the financial stock markets. This study contains time series data collected on daily basis from 1 st Jan 2001 to 31 st Dec 2018. Study utilized deductive research approach with quantitative data. A linear regression model is used to estimate the effect of terrorist activities on the market return of the financial stock markets of the selected countries. The results of the model suggest that the market return is very much affected by the occurrence of such terror events and the model is overall statistically significant. The results of this study are consistent with the results of Freytag et al. (2009) and Bas et al., (2017) studies which show that there is significant influence of terrorism activities on financial stock market of five selected countries. This study is very significant and essential for investors and analysts as it helps them to understand how terror factors influence stock market and the right time to invest or exit the market. Findings of the study highlight and explain how terrorism activities influence the overall market return.
Highlights
Change in circumstances is expected to affect the stock prices with a direct reflection on the discounted value of existing and future performance of a firm. Schwert (1981), Freytag et al (2009), Kumaraswamy et al (2019), Peker et al (2019) state that positive and negative changes in the stock prices can possibly be connected to certain particular event.
Sample of study is five economies stock market indices which include Spain, United Kingdom, Pakistan, India, France and United Stated of America. Data of these countries is collected from New York stock exchange, Bolsa de Madrid (Spain), London stock exchange, Karachi stock exchange, Bombay stock exchange and France stock exchange
The P value of 2.420% which is less than 5% shows that terrorism activities that are the independent variable of this study_is significantly affecting the market return
Summary
The term terrorism has been defined by different researchers but Sandler & Enders (2008), describe terrorism as the “Premeditated, threatened or actual use of force or violence to achieve a political goal through fear, coercion or intimidation”. This definition brings within its fold the four features of terrorist activity as given by Schugart (2006), using violence for political purpose: a well-devised way for an action; such behavior which is not within the accepted rules of warfare and, an effort to produce great fear and sense of insecurity among the people, the civilians
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