Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-49787
Brune, Amelie; Hens, Thorsten; Rieger, Marc Oliver; Wang, Mei (2011). The war puzzle: Contradictory effects of international conflicts on stock markets. NCCR FINRISK 688, University of Zurich.
We study a number of large international military conflicts since World War II where we establish a news analysis as a proxy for the estimated likelihood that the conflict will result in a war. We find that in cases when there is a pre-war phase, 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 as a surprise, the outbreak of a war decreases stock prices. We show that this paradox cannot be explained by uncertainty about investment decisions, nor by the expectation about a quick end of the war or ambiguity aversion. A connection of this puzzling phenomenon to mean-variance preferences of investors is suggested.
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|Item Type:||Working Paper|
|Communities & Collections:||03 Faculty of Economics > Department of Banking and Finance|
|Dewey Decimal Classification:||330 Economics|
|JEL Classification:||G11, G14, G19|
|Deposited On:||27 Sep 2011 09:18|
|Last Modified:||09 Jul 2012 04:55|
|Series Name:||NCCR FINRISK|
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