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

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

Department of Economics, University of Thessaly, Korai 43, Volos 38333, Greece
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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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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Int. J. Financial Stud. EISSN 2227-7072 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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