How stock markets become desensitized to terror

Abstract

Purpose

A widely accepted belief indicates that terror activities have negative impact on stock markets. Contrary to numerous empirical studies, the purpose of this paper is to consider this issue from another point of view in the sense that markets can become desensitized to terror.

Design/methodology/approach

Here, instead of directly analyzing the existing data, the stochastic nature of the events is taken into consideration.

Findings

The author compares three countries and found out that the correlation between terror and stock markets is almost nil when terror events become a commonplace.

Originality/value

This paper applies mean reverting stochastic processes to terror incidents and brings out interesting results.

Citation

Ilalan, D. (2017), "How stock markets become desensitized to terror", Journal of Financial Crime, Vol. 24 No. 4, pp. 704-711. https://doi.org/10.1108/JFC-07-2016-0049