On the (In)sensitivity of a Stock Market to Terrorism: Turkish Experience

Authors : Mustafa YILDIRIM

Pages : 169-178

Doi:10.21121/eab.2018237359

View : 23 | Download : 10

Publication Date : 2018-04-01

Article Type : Research Paper

Abstract :This paper investigates the impact of terrorism that took place within Turkish borders on the Turkish stock market by utilizing the daily time series of terror attacks and the benchmark stock index between 2000 and 2015. The terror data taken from the Global Terrorism Database distinguishes itself in several aspects, including location, attack types, the number of attacks, the number of victims killed, and the number of victims injured. It is shown that the stock market became desensitized to terror attacks over time. The sensitivity that is observed for the period of 2000-2004 is lost for the remaining period of 2004-2015. The sensitivity period includes the 2001 financial crisis of Turkey after which various financial reforms were implemented. Hence, the lost sensitivity over the 2004-2015 period is considered to be associated with the changing state of the financial system. Moreover, it is found that the location of an attack is unimportant for the stock market. However, when attacks are classified into types based on tactics used during the attack, it is shown that the stock market is negatively sensitive to terrorism only when the attack type is facilities/ infrastructure. Since the conclusions are based on Turkey, they might have broader implications for  developing countries.
Keywords : Terror, Turkey, Stock Markets, BIST, 2001 Crisis