DO TERRORIST ATTACKS IMPACT EXCHANGE RATE BEHAVIOR? NEW INTERNATIONAL EVIDENCE

Abstract

This study examines whether terrorist attacks affect bilateral exchange rates. Using historical 10-minute exchange rate data for 21 countries' currency vis-à-vis the U.S. dollar, we show that exchange rate returns of all countries are statistically significantly affected by terrorist attacks. Some exchange rates appreciate and some depreciate following a terrorist attack, some currencies experience exchange rate reversals while others experience a persistent effect. Generally, the effect declines but persists as terrorist attacks become stale information. (JEL F31, F37).