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Attention to Israel’s war on Gaza and stock price behavior: evidence from the Tel Aviv market

Walid M.A. Ahmed, Mohamed A.E. Sleem

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 31 December 2024

57

Abstract

Purpose

Public interest in global events has become a robust driver of investor behavior and market dynamics. This paper assesses the potential influence of attention to the 2023 Israel–Palestine war on the Tel Aviv stock market performance. Our investigation includes both the aggregate market and major sectors.

Design/methodology/approach

Leveraging the Google Trends service, we track search interest for a rich list of 20 terms closely linked to the ongoing conflict. Subsequently, we employ principal component analysis to construct a proxy indicator for war-related attention. To examine the potential influence of this attention on stock price returns and volatility, we adopt an EGARCH-X(p, q) framework, incorporating proxy factors to mitigate potential model under-specification issues.

Findings

The results suggest that increased attention to Israel’s invasion of Gaza is associated with negative returns and heightened volatility across most sectors. Additionally, the finance and technology sectors appear to be the most vulnerable, whereas the industrials and real estate sectors show comparatively lower levels of impact.

Practical implications

Given the observed negative effects of public attention to geopolitical conflicts on stock price dynamics, investors should consider incorporating geopolitical risk assessments into their investment strategies. Understanding how the Israel–Palestine conflict affects market behavior can help investors and fund managers make more informed decisions, including diversifying their asset portfolios to reduce risk or adjusting their positions in sectors most susceptible to such events.

Originality/value

To our best knowledge, this paper presents the first attempt to leverage the ongoing Israel–Palestine war as a compelling example to assess how public awareness of, and reactions to, interstate conflicts impinge on financial market returns and volatility.

Keywords

Citation

Ahmed, W.M.A. and Sleem, M.A.E. (2024), "Attention to Israel’s war on Gaza and stock price behavior: evidence from the Tel Aviv market", Journal of Economic Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JES-08-2024-0512

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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