بازده سهام و نوسانات پس از حملات 11 سپتامبر: شواهدی از 53 بازارسهام

September 11 attacks matter, and why not? Given that globalization has integrated financial markets, the magnitudes of the effect of the September 11 attacks on global markets are expected to be pervasive. We used data from 53 equity markets to investigate the short term impact of the September 11 attacks on markets' returns and volatility. Our empirical findings indicate that the impact of the attacks resulted in significant increases in volatility across regions and over the study period. However, stock returns experienced significant negative returns in the short-run but recovered quickly afterwards. Nevertheless, we find that the impact of the attacks on financial markets varied across regions. The implication here is that the less integrated regions (e.g., Middle East and North Africa) are with the international economy, the less exposed they are to shocks.

It is well-documented that international capital markets react, in terms of returns and volatility, quickly and simultaneously to major events such as the crash of 1987 and the Asian crises in 1997. However, the timing and magnitude of changes in stock returns and volatility differ across markets around the world (Roll, 1988). Although the periods with high volatility and dramatic movements in stock returns are found to be associated with important events in each country rather than global events, the crash of 1987 proved to have a significant impact on several international markets (Aggarwal et al., 1999, Goodhart, 1988, King and Wadhwani, 1990 and Malliaris and Urrutia, 1992). It is, however, the September 11 attacks that are a new phenomenon, in which there is a need to understand their impact on the international stock market behavior. It is typical for previous studies on the impact of global events on international stock markets to deal with those events that arise from market forces, i.e., economic and trading factors (see for example, Arshanapalli and Doukas, 1993, Arshanapalli et al., 1995, Choudhry, 1996, Patel and Sarkar, 1998 and Yang et al., 2003). However, the September 11 attacks have a different characteristic. It is a new event that is related to terrorist activities but its impact is not limited to the political agenda. The attacks had significant economic repercussions not only in the US, but also across the world (see for example, Ito & Lee, 2004). The stock markets in the US and across the world reverberated in response to this unexpected event.1 We examine whether these terrorist attacks led to a significant change and shift in stock returns and volatility across different stock markets in the short-run, up to 6 months. The paper contributes to the existing literature on stock markets' behavior by providing additional evidence of the reaction of markets to unexpected events, such as September 11 attacks (see e.g., Schwert, 1990, for the crash of 1987 among others). In particular, the paper does not confine itself to developed or major emerging markets, but also extends to cover the usually ignored region, i.e., the Middle East and North Africa (MENA). Expanding the focus and targeting different regions allow us to better understand whether the impacts of these kinds of political or terrorist shocks are pervasive across regions or if their impact is limited only to integrated markets. Using daily stock indices from 53 countries and covering the period from March 10, 2001 to March 12 2002, we compare the behavior of stock markets in six different regions before and after the September 11 attacks to examine whether the impact of this event is pervasive across regions. The empirical findings indicate that only developed and European countries exhibit similar stock returns and volatility behavior before September 11. In contrast, the Middle East and North Africa (MENA), Latin America, and to less extent the transition economies and Asia, tend to have significantly different behavior compared with developed and European countries. In the period after September 11, the results, to some extent, corroborate our pre-September findings in terms of volatility. When we look at the behavior of stock returns, shortly after the attacks (at 5 and 10 days), it is confirmed that all regions, but not MENA, exhibit the same downturn and that no statistically significant differences exist. We also compare the returns (volatility) of each region in the periods before and after September 11. Our findings show a significant increase in volatility across regions that are consistent with the previous findings, in which volatility increases after shocks (Engle and Mustafa, 1992, Schwert, 1989 and Schwert, 1990). Stock returns, however, show a significant decline shortly after the attacks across regions except MENA, and a significant rebound over longer periods (3- and 6-month). The implication here is that the September 11 attacks have a minor effect on MENA compared with the rest of the world. However, we cannot confirm whether this implies significant differences between certain pairs of regions. We therefore delved further into this issue by calculating the changes in returns and volatility of each region and then compared the mean (median) changes of each pair of regions. The results indicate that it is still the MENA region that tends to be significantly different compared with other regions, in particular, developed and European markets, in terms of changes in stock returns. We could also confirm that volatility changes exhibit significant increases in developed and European markets, which implies that those markets are affected more by the September 11 attacks than are other regions. In summary, although it appears that the event has affected stock markets' behavior across regions, the degree of this impact is highly significant for developed, European, and to a lesser extent, Asian countries. On the other hand, the attacks left a modest impact on the transition economies and Latin America, while the impact on the MENA region is minimal. We could, then, argue that the response of international markets to events differs according to the degree of integration of each region with the international markets. The remainder of the paper is organized as follows: Section 2 provides the data set that we employ in this study. We discuss the methodology and the empirical models along with test statistics in Section 3. Section 4 reports the empirical findings and analysis, while Section 5 concludes the paper.

In this paper, we examine the reactions of 53 stock markets to the September 11 attacks over several intervals up to six months. Given that globalization has integrated financial markets, we hypothesize that the effect of the September 11 attacks on global markets is pervasive. Our empirical findings indicate that only developed and European countries exhibit similar stock returns and volatility behavior in the pre-September 11 period. In contrast, the Middle East and North Africa (MENA), Latin America, and to a lesser extent the transition economies and Asia, tend to have significant different behavior compared with developed and European countries. In the post-September period, the results, to some extent, corroborate our pre-September findings in terms of volatility. When we look at the behavior of stock returns shortly after the attacks (5 and 10 days), it is confirmed that all regions, but not MENA, exhibit the same downturn and no statistically significant differences exist. We also show that volatility increased significantly after the attacks across regions, in line with the previous literature (Engle and Mustafa, 1992 and Schwert, 1990). Stock returns, however, show a significant decline shortly after the attacks across regions except MENA, and a significant rebound over longer periods (3 and 6 months). However, when we compare the mean (median) changes in returns and volatility of each pair of regions, we find that the MENA region still tends to behave significantly differently compared with other regions, in particular, developed and European markets, in term of changes in stock returns. We could also confirm that volatility changes exhibit significant increases in developed and European markets, which implies that those markets are affected more by the September 11attacks compared with other regions. Our results have two important implications. First, although with the globalization effect, in which stock markets are expected to show uniform responses to shocks, the degree of stock market reactions to such shocks differs from one region to another, depending on the level of integration with the international economy. Consequently, international investors could benefit from the portfolio diversifications as long as there are some countries, or even regions, that are not fully integrated with the international markets (e.g., the MENA region). Second, unlike other shocks, in particular the 1987 crash and the 1997 Asian crisis, the reactions of the financial markets to the September 11 attacks are less severe than those occurring in the previous shocks. The quick rebound of the stock markets may imply that these markets have become more resilient in recent years, or that we have to treat political or terrorist shocks differently than economic or market shocks.