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

Öz

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.

Anahtar Kelimeler

• Terror; Turkey; Stock Markets; BIST; 2001 Crisis

Kaynakça

1. Brounen, D. and Derwall, J. (2010) “The Impact of Terrorist Attacks on International Stock Markets” European Financial Management, 16(4):585-598.
2. Brown, S. J., & Warner, J. B. (1980) “Measuring security price performance” Journal of financial economics, 8(3):205-258.
3. Brown, S. J. ve Warner, J.B. (1985) “Using Daily Stock Returns: The Case of Event Studies” Journal of Financial Economics, 14(1):3-31.
4. Buesa, M., Valiño, A., Heijs, J., Baumert, T., & Gomez, J. G. (2007) “The Economic Cost of March 11: Measuring the direct economic cost of the terrorist attack on March 11, 2004 in Madrid” Terrorism and Political Violence, 19(4):489-509.
5. Chen, A.H. and Siems, T.F. (2004) “The Effects of Terrorism on Global Capital Markets” European Journal of Political Economy, 20(2):349-366.
6. Crain, N. V., & Crain, W. M. (2006) “Terrorized economies” Public Choice, 128(1-2):317-349.
7. Drakos, K. (2010) “Terrorism activity, investor sentiment, and stock returns” Review of Financial Economics, 19(3):128-135.
8. Drakos, K. and Kutan, A. M. (2003) “Regional effects of terrorism on tourism in three Mediterranean countries” Journal of Conflict Resolution, 47(5):621-641.

9. Dravid, A. R. (1987) “A Note on the Behavior of Stock Returns around Ex-Dates of Stock Distributions” The Journal of Finance, 42(1):163-168.
10. Eckstein, Z. and Tsiddon, D. (2004) “Macroeconomic Consequences of Terror: Theory and the Case of Israel” Journal of Monetary Economics, 51(5):971-1002.
11. Eldor, R. and Melnick, R. (2004) “Financial Markets and Terrorism” European Journal of Political Economy, 20(2):367-386.
12. Eldor, R. R., Hauser, S., Kroll, Y., and Shoukair, S. (2012) “Financial markets and terrorism: The perspective of the two sides of the conflict” Journal of Business Administration Research, 1:18–29.
13. Enders, W. and Olson, E. (2012) “Measuring the economic costs of terrorism” The Oxford Handbook of the Economics of Peace and Conflict, 874.
14. Eruygur, A. Ç. and Omay, T. (2014) “Terrorism and the Stock Market: A Case Study for Turkey Using STR Models” Journal of Reviews on Global Economics, 3:220- 227.
15. Essaddam, N. and Karagianis, J. M. (2014) “Terrorism, country attributes, and the volatility of stock returns” Research in International Business and Finance, 31:87-100.
16. Fama, E. F., Fisher, L., Jensen, M. C. and Roll, R. (1969) “The Adjustment of Stock Prices to New Information” International Economic Review, 10(1):1-21.
17. Gaibulloev, K. and Sandler, T. (2008) “Growth consequences of terrorism in Western Europe” Kyklos, 61(3):411-424.
18. Gaibulloev, K. and Sandler, T. (2009) “The impact of terrorism and conflicts on growth in Asia” Economics & Politics, 21(3):359-383.
19. Karolyi, G. A. (2006) “The consequences of terrorism for financial markets: What do we know?” Ohio State University, Charles A. Dice Center for Research in Financial Economics.
20. Karolyi, G. A. and Martell, R. (2010) “Terrorism and the stock market” International Review of Applied Financial Issues and Economics, (2):285-314.
21. Kasman, A., Vardar, G., Okan, B., and Aksoy, G. (2009) “The Turkish Stock Market Integration with Developed and Emerging Countries' Stock Markets: Evidence from Cointegration Tests with and without Regime Shifts” Review of Middle East Economics and Finance, 5(1):24-49.
22. Lyon, J. D., Barber, B. M., and Tsai, C. L. (1999) “Improved Methods for Tests of Long-Run Abnormal Stock Returns” The Journal of Finance, 54(1):165-201.
23. Mlodkowski, P., & Tastulekova, A. (2012) “Performance of Capital Markets in the EU and in Turkey: Cointegration Analysis” European Integration Studies, (6):160-167.
24. Nguyen, AP and CE Enomoto (2009) “Acts of terrorism and their impacts on stock index returns and volatility: The cases of the Karachi and Tehran stock exchanges” International Business &Economics Research Journal, 8:75–86.
25. Nikkinen, J, MM Omran, P Sahlström, and J Äijö (2008) “Stock returns and volatility following the September 11 attacks: Evidence from 53 equity markets” International Review of Financial Analysis, 17:27–46.
26. Park, C. Y. and Lee, J. W. (2011) “Financial integration in emerging Asia: Challenges and prospects” Asian Economic Policy Review, 6(2):176-198.
27. Pound, J., Zeckhauser, R. (1990) “Clearly Heard on the Street: The effect of takeover rumors on stock prices” Journal of Business, 63(3):291-308.
28. Zussman, A. and Zussman, N. (2006) “Assassinations: Evaluating the effectiveness of an Israeli counterterrorism policy using stock market data” The Journal of Economic Perspectives, 20(2):193-206.