Terrorist attacks and oil prices: A time-varying causal relationship analysis

Abstract

This study investigates the time-varying interaction between terrorist attacks and oil prices using a bootstrap full-sample causality test and sub-sample rolling window estimations. The results show that terrorist incidents (defined by the occurrence of an attack) and the associated brutality (measured by the number of casualties produced by the attack) may be important factors in explaining changes in oil prices, but their effects differ. Terrorist incidents have both positive and negative time-varying effects on oil prices, but terrorist brutality has only negative effects, and its impact is far less than for terrorist incidents. In contrast, there is weak evidence that terrorist attacks respond in a significant manner to oil prices. Terrorist attacks depend on the long-term influences of various complex factors and the importance of short-term changes in oil prices is negligible. Our research may be helpful to market participants in analyzing and predicting the results of terrorism on oil prices, which has great significance for investment decision-making and risk-avoidance strategies in the oil markets.