The impact of terrorism on Indian securities market

Abstract

The paper aims to examine the relationship between stock returns and terrorist attacks for the Indian securities market in last 30 years. The stock market returns have been modelled using conditional volatility framework, and there are good enough shreds of evidence to confirm that terrorist activity and cross-border tension has disrupted the investors’ sentiment. The market response to the terrorist attack holds different facets like Target, Location, Number-of-perpetrators, and Property-value has produced a significant impact on the financial market. At the outset, attack day hold an adverse effect on the market and remains unstable till next few days followed by the recent terrorist attack. The results also imply that market participant considers the nature of terrorist attack in their portfolio selection and long-term investment strategy. The practical implications of the study are threefold: (i) investors do regard the terrorist attack in their investment proposal (ii) investors take the short position due to terrorist attack that result into the rise of general stock market volatility and (iii) the financial planning within short-horizon gets postponed followed by the recent terrorist attack.