On the (In)sensitivity of a Stock Market to Terrorism: Turkish Experience

Abstract

This paper investigates the impact of terrorism thattook place within Turkish borders on the Turkishstock market by utilizing the daily time series ofterror attacks and the benchmark stock indexbetween 2000 and 2015. The terror data taken fromthe Global Terrorism Database distinguishes itself inseveral aspects, including location, attack types, thenumber of attacks, the number of victims killed, andthe number of victims injured. It is shown that thestock market became desensitized to terror attacksover time. The sensitivity that is observed for theperiod of 2000-2004 is lost for the remaining periodof 2004-2015. The sensitivity period includes the2001 financial crisis of Turkey after which variousfinancial reforms were implemented. Hence, the lostsensitivity over the 2004-2015 period is consideredto be associated with the changing state of thefinancial system. Moreover, it is found that thelocation of an attack is unimportant for the stockmarket. However, when attacks are classified intotypes based on tactics used during the attack, it isshown that the stock market is negatively sensitiveto terrorism only when the attack type is facilities/infrastructure. Since the conclusions are based onTurkey, they might have broader implications for developing countries.