ABSTRACT

In this paper, the event study methodology is used to assess the effects of terrorism on global capital markets. We examine the US capital market’s response to fourteen terrorist/military attacks dating back to 1915 and global capital markets’ response to two recent events –Iraq’s invasion of Kuwait in 1990 and the 11 September 2001 terrorist attacks. US capital markets are more resilient than in the past and recover sooner from terrorist attacks than other global capital markets. Evidence suggests that this increased market resilience can be partially explained by a stable banking/financial sector that provides adequate liquidity to promote market stability and minimize panic.