The impact of terrorism on Stock Markets: The Boston Bombing Experience in Comparison with Previous Terrorist Events

The present paper studies the impact of the Boston bombings on the main international stock markets, comparing it with that of previous terrorist attacks (9/11, 3/11 and 7/7). In order to properly embed our analysis in the theoretical framework, first we present an overview of earlier studies centred on the repercussion of terrorism on financial markets. The empirical part consists in measuring whether the return of the Dow Jones, the Ibex, the FTSE, the CAC40, the MIB, the DAX and the Nikkei resulting from the attacks differ statistically —that is, can be considered abnormal— regarding the variations of the 30 trading days before the attack. In addition, we also study the intraday data, contrasting the direct impact of news spread through social media —this was the first time that even official institutions such as the Boston Police used Twitter as main instrument of communication— affected the index of the New York stock market. Finally we also take into consideration the repercussion of the fake tweet about an alleged terrorist attack on the White House hurting president Obama and compare its impact with that of the Boston bombing. Our results show that the reaction of all stock markets after the Boston bombings can be considered abnormal inasmuch as they were significantly different from the mean behaviour of the previous month. They also prove that the impact from 9/11 to Boston have continuously diminished over time, and also that the spread between the reactions of the different markets has reduced considerably. All this would appoint towards the fact that stock markets have learned to less overreact and evaluate the real economic consequences of an terrorist attack more objectively and also that the risk of such an attack is being included more systemically in share prices