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The war puzzle: contradictory effects of international conflicts on stock markets


Brune, Amelie; Hens, Thorsten; Rieger, Marc Oliver; Wang, Mei (2015). The war puzzle: contradictory effects of international conflicts on stock markets. International Review of Economics, 62(1):1-21.

Abstract

We study stock market reactions to large international military conflicts since World War II. Using a news analysis proxy for the estimated likelihood that a conflict will result in a war, we find that an increase in the war likelihood tends to decrease stock prices, but the ultimate outbreak of a war increases them. In cases when a war starts surprisingly, however, the outbreak of a war decreases stock prices. We show that this puzzle cannot be explained by risk or ambiguity aversion or by expectations about a quick end of the war.

Abstract

We study stock market reactions to large international military conflicts since World War II. Using a news analysis proxy for the estimated likelihood that a conflict will result in a war, we find that an increase in the war likelihood tends to decrease stock prices, but the ultimate outbreak of a war increases them. In cases when a war starts surprisingly, however, the outbreak of a war decreases stock prices. We show that this puzzle cannot be explained by risk or ambiguity aversion or by expectations about a quick end of the war.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:March 2015
Deposited On:18 Jan 2016 13:06
Last Modified:05 Apr 2016 19:55
Publisher:Springer
ISSN:1865-1704
Additional Information:The final publication is available at Springer via http://dx.doi.org/10.1007/s12232-014-0215-7
Publisher DOI:https://doi.org/10.1007/s12232-014-0215-7
Other Identification Number:merlin-id:10241

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