تروریسم جهانی و انتظارات تطبیقی ​​در بازارهای مالی: شواهدی از بازار سهام ژاپن

The adaptive expectations model posits that economic agents’ expectations adjust by constant proportion of previous discrepancy and the forecast for the following period is the same for all the subsequent future periods, if the expectation is a permanent. We apply this hypothesis and event study methodology to examine the impact of five terrorist attacks (New York World Trade Centre, Bali, Madrid, London, and Mumbai) on Japanese industries. Being a watershed event, the negative impact of the attacks in the U.S. was apparent. Our evidence suggests an initial step-change in risk incorporated into expectations after the U.S., Bali and Madrid bombings. The two subsequent attacks had no effect on the market implying no the forecast error in risk expectation in Japan after the initial terrorist attacks.

Terrorism, a significant geopolitical risk that affects global financial markets, is not a recent phenomenon. The terrorist attack on the World Trade Centre twin towers in New York on September 11, 2001 (9/11) has, however, proven to be a watershed event in global terrorism and fundamentally changed business operations and risk perception. Rosendorff and Sandler (2005) accentuate this point when they suggest that the event aptly underscored the susceptibility of modern societies to terrorist attacks as an everyday object could be utilised to wreck havoc on a gigantic scale. They also note that the magnitude of the attack and the resulting bloodshed were unprecedented in terms of terrorist attacks and that the financial losses resulting from the event (about USD 90 billion) were far greater than those associated with the terrorist attacks to date. Furthermore, they propose 9/11 set the standard for future attacks as terrorists try to exceed the scale of past attacks to capture and maintain media attention. This epochal event has intensified interest in the threat posed by modern-day terrorism and a new development on how terrorist risk is perceived. Combined with the globalisation trend in business, the post-9/11 environment has made a panoramic view of risk both essential and inevitable. Karolyi (2006) provide a review of the literature on terrorism and the financial markets and indicate that there is an additional psychological fear of terrorism on economic behaviour that may turn out to be a permanent. This fear implies economic agents may form expectations based on recently observed events. The adaptive expectations hypothesis suggests economic agents’ expectations adjust by constant proportion of previous discrepancy. The model suggests the expected target level is an exponentially weighted moving average of past observed averages, with recent values weighted more heavily (see Muth, 1960). Furthermore the forecast for the following period is the same for all the subsequent future periods, if the expectation is permanent and not transitory. However, if investors learn ex post that there is an error in their long term expectations of risk-return trade-off following new information in subsequent attacks, an adjustment in the permanent long term expectations would be made. Implicitly, being a turning point in global terrorism, if investors re-adjusted their risk-return expectation based on 9/11 terrorist event, then financial markets should not experience any significant abnormal returns and change in risk following subsequent terrorist events as these would have already been incorporated into investors’ permanent expectations. This paper examines the simple case of adaptive expectations hypothesis in financial markets following terrorist events and investigates the effect of dreadful attacks on the World Trade Centre in New York and four subsequent terrorist attacks (Bali, Madrid, London, and Mumbai) on all relevant Japanese industries. In a recent study, Brounrn and Derwall (2010) investigate the impact of 31 terrorist attacks on various stock markets and industries, including Japan. However, their analysis is limited to six industries (Airlines, Defense, Food, Hotels, Insurance, and Oil & Gas). We contribute to the literature by providing comprehensive analyses of all relevant industries in Japan. In addition, there is a non-negligible time difference between Japan and the U.S., and the European markets which we take into consideration in our empirical analysis. That is, in our estimated models we explore asynchronicity between these markets by including a feedback effect from the U.S. and the European markets to the Japanese market. The deep economic ties as well as the flow of people between Japan on the one hand, and the Europe, Asia, and the U.S., on the other hand, suggests that terrorism poses a potent threat to the economic interests of Japan (Narayana and Narayan, 2010 and Guzel and Ozdemir, 2011). This is evident from the speed with which Japan acted to push through counter-terrorism measures in their legislature following 9/11. Of financial markets, Japan was the first market to open following the initial September 11 and the subsequent four terrorist attacks (Bali, Madrid, London, and Mumbai). For example, unlike the U.S. market that opened six days after the attack, the Japanese market opened the day after the attack. Therefore, Japan offers a unique insight into the immediate reactions of domestic equity investors to international terrorism. Following the adaptive expectations model, we initially hypothesise that those subsequent terrorist events after the September 11, 2001 bombings in the U.S. would not have significant impact on abnormal returns and risk in Japanese equity markets as investors have already incorporated geopolitical risks resulting from terrorism in their expectations around the 9/11 attacks. Nikkinen et al. (2008) show that market response to terrorist attacks in the U.S. differs across regions. We extend this pattern of thought and examine the micro content of the Japanese market, industry portfolios, and further hypothesise differential industry effects of terrorist attacks. We recognise that the some industry response may differ from the general market sentiment. In this study, we modify the methodologies used in the existing literature by excluding firm specific information, using regression analysis and non-parametric tests, to reinforce our findings. Chesney et al. (2011) propose non-parametric test to be the most appropriate method for analysing the impact of terrorism on financial markets. Most of the existing literature fails to exclude firm specific information and, thus, report results which contain both the impact of terrorist attacks and other non terrorist components. In earlier studies, Roll (1988) and Nikkinen et al. (2008) suggest that the timing and magnitude of changes in stock returns and volatility varies across markets around the world in response to major events. In response to 9/11 attacks, Chen and Siems (2004), Richman et al. (2005), and Brounrn and Derwall (2010) all document negative reactions of international markets. Richman et al. (2005) further show short and long term effects following the September 11 attack. Studies by Fernandez, 2007 and Fernandez, 2009, Hammoudeh and Li (2008) and Choi and Hammoudeh (2010) also show that financial markets in the Middle East react negatively to transnational terrorist attacks and geopolitical crises. Other studies have looked into the effects of the terrorist attack on industry portfolios. For instance, Drakos (2004) and Carter and Simkins (2004) investigate the effects of September 11 attacks on a set of airline stocks at various international stock markets and show an immediate impact on the world stock exchanges. Drakos (2004) documents an apparent shift in the riskiness of airlines stocks after the attack through an increase in systematic risk. Carter and Simkins (2004) find a negative reaction of both domestic and international airlines. Ito and Lee (2005), on the other hand, note a substitution effect between domestic and international travel in Japan. They show an upward spike of 6% in the Japanese domestic demand and a dramatic drop of 8.9% in international demand after the September 11 event. Cam (2008) further observes a differential impact on industry portfolios in the U.S. and shows that some industries were positively affected. Ramiah et al. (2010) shows significant negative abnormal returns and increase in systematic risk for the Australian market following September 11 bombing. Brounrn and Derwall (2010) studied 31 terrorist attacks on national and six industry portfolios and demonstrate that the September 11 terrorist event is the only one that had a long term effect on the international equity markets. Consistent with the literature, we find significant negative abnormal returns associated with September 11 for both the Japanese market index and industrial portfolios. The prior literature suggests inconsistent results in terms of changes in short term risk. Drakos (2004) suggests an increase in short term market risk in the airline industry whilst Richman et al. (2005) find the opposite for the market index. We find theoretical consistency with Drakos (2004) in that systematic risk for most of the Japanese industrial portfolios increases immediately after the September 11 attack. For the four terrorist attacks subsequent to September 11, our results generally suggest no impact on abnormal returns on the first trading day immediately after the incidents. In terms of the short term systematic risk, we also, generally, observe no change in most sectors following the terrorist attacks. However we note a step-change adjustment in long term risk following the Bali and Madrid bombings but no effect resulting from the subsequent two attacks in London and Mumbai, implying no the forecast error in risk expectation in Japan after the initial terrorist attacks. The rest of the paper is structured as follows: in Section 2, we present the data and methods used in this study. Section 3 presents the empirical findings and Section 4 concludes.

4. Conclusion The literature generally notes that terrorism and military attacks increase the cost of doing business because of added security and increased risks. Whilst the market reaction as a whole has been extensively studied, only a handful of papers have looked into the specific sectors and the impacts of terrorism on foreign countries on domestic securities. Even then, only the banking and airline industries have been extensively studied. Additionally, the extant literature shows a dearth of studies on the terrorist attacks after September 11. In this paper, we utilise the adaptive expectations hypothesis and event study methodology to assess the impact of these terrorist attacks all Japanese industrial sectors. Of the five recent terrorist attacks studies, our results show that the events of September 11 had the greatest effect on the Japanese market. The majority of the industries were down on the first trading day, and fifty percent of the industries were still negatively affected five days after the event. We also demonstrate an increase in systematic risk of these sectors in both the short run and long run following the attacks on the twin towers in New York. On the other hand, we find that the Japanese sectors were insensitive to the later terrorist attacks in Mumbai and London bombings. We interpret that to mean no new information on terrorist risk from these terrible events. There was an initial step-change in risk which was incorporated into expectations after the U.S., Bali and Madrid bombings. The evidence from the subsequent attacks imply there was no the forecast error in risk expectation in Japan after these three attacks.