Event-study volatility and bootstrapping: an international study

Abstract

This paper examines the impact of terrorism on volatility of stock returns over 17 market indices between 1994 and 2005. Using a volatility event study approach methodology, we find that terrorism has a significant impact on the stock market volatility. We also propose a new semiparametric bootstrap technique which consists in re-sampling the rescaled residuals obtained from the estimations of GARCH equations before the event and using a moving block approach where the residuals are chosen in a chronologically consecutive manner each time we generate a bootstrap sample. This technique provides a better way to perform inference that is more reliable on finite samples than inference based on conventional asymptotic theory.

Stock Market Reaction to Terrorist Attacks and Political Uncertainty: Empirical Evidence From the Tunisian Stock Exchange

“…They also find that firms in rich and/or more democratic countries experience a greater variation in the volatility of their stock market returns compared to firms in developing countries. Essaddam and Mnasri (2015) refined the evaluation methodology of Essaddam and Karagianis (2014) by proposing a bootstrap method using a set of 28 events (terrorist attacks) in 17 countries. Their results show that abnormal volatility begins on the day of the attack and remains significant for a number of days.…”

Perceptions of the threat to national security and the stock market

“…The link between implied volatility and national security concerns has only been examined once in the prior literature (see Bevilacqua et al, 2020). The extant evidence shows that, in the face of terrorism, stock returns exhibit significantly elevated realized volatility, which is relatively short-lived (Essaddam and Mnasri, 2015). In developed capital markets like the U.S., recovery following an attack can be swift (Chen and Seims, 2004).…”

“…Amidst an ongoing conflict, however, no abnormal volatility behavior is observed. Essaddam and Karagianis (2014) and Essaddam and Mnasri (2015) show that market variability can be affected by terrorist attacks, albeit the effect is ephemeral and restricted to a few days. In this paper, we re-examine the impact of threats to national security on the second moment of return distribution by utilizing the continuous threat index.…”

A Comparative Analysis of Effects of Terrorism on World Equity Markets

“…Overall the results of previous studies show mixed results regarding effects of terrorism events on the equity returns of developed and developing equity markets. However, most research examining the reaction of financial markets to terrorist attacks suggests that the impact of these events on equity markets is limited and lasts for a short period (Chen & Siems, 2004;Chesney et al, 2011;Essaddam & Mnasri, 2015). However, these studies did not addressed the equity markets of developing countries, whereas, the effect of terrorism events on equity markets lasts longer in the emerging countries in sharp contrast to the developed countries (Mnasri & Nechi, 2016).…”