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Int. J. Financial Stud. 2013, 1(4), 154-167; doi:10.3390/ijfs1040154
Article

European Markets’ Reactions to Exogenous Shocks: A High Frequency Data Analysis of the 2005 London Bombings

1
,
1,*  and 2
1 Department of Economics, University of Thessaly, Korai 43, Volos 38333, Greece 2 Department of Business Administration, University of Patras, Rio, Patras 26504, Greece
* Author to whom correspondence should be addressed.
Received: 29 September 2013 / Revised: 7 November 2013 / Accepted: 11 November 2013 / Published: 18 November 2013
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Abstract

Terrorist incidents exert a negative, albeit usually short-lived, impact on markets and equity returns. Given the integration of global financial markets, mega-terrorist events also have a high contagion potential with their shock waves being transmitted across countries and markets. This paper investigates the cross-market transmission of the London Stock Exchange’s reaction to the terrorist attacks of 2005. It focuses on how this reaction was transmitted to two other major European stock exchanges: Frankfurt and Paris. To this effect, high frequency intraday data are used and multivariate Genralised Autorgressive Conditional Heteroskedasticity (GARCH) models are employed. This type of data help reveal a more accurate picture of markets’ reaction to exogenous shocks, such as a terrorist attack, and thus allow more reliable inferences. Findings reported herein indicate that the volatility of stock market returns is increased in all cases examined.
Keywords: capital markets; contagion; terrorism; multivariate GARCH capital markets; contagion; terrorism; multivariate GARCH
This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

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Kollias, C.; Papadamou, S.; Siriopoulos, C. European Markets’ Reactions to Exogenous Shocks: A High Frequency Data Analysis of the 2005 London Bombings. Int. J. Financial Stud. 2013, 1, 154-167.

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