Stocks and shocks

Abstract

How do stock markets respond to extreme events? This paper analyzes the reaction of stock markets in four industrialized economies (Italy, the Netherlands, Sweden, the US) to ten major international crises. We employ an event study to investigate whether the stock exchanges react differently with respect to extreme events such as the Chernobyl nuclear power plant meltdown, the Gulf War, the peso crisis, the Kosovo War or the 11/9 attack on the US. There is no substantial evidence that markets react differently to extreme events than to more ordinary news. We have significant evidence that there is no standard reaction of stock markets to extreme events. JEL Codes: G12, G14, G15

Keywords

• Stock Market
• Stocks