Stock Market Interdependence During War War Dissertation

Investment Supervision and Monetary Innovations, 3/2005


Wall street game Interdependence through the Iraq Battle

Stefano Paleari, Renato Redondi, Silvio Vismara Abstract

This paper should show just how consolidated and innovative methodologies can be employed to assess the economic impact of any global distress. Particularly, all of us consider the Iraq Conflict in 2003 and its effect on the market indices of five of the very capitalised share markets in the world, U. S., U. K., France, Germany and Italy. After using an event analyze methodology to assess the immediate impact of War occasions on the five selected markets, we substantially analyse the correlation between these market segments. Since cross-market correlation rapport are conditional on market movements, tests for market interdependence based on these types of coefficients will be inaccurate due to heteroskedasticity. Therefore , during downturn when marketplaces are more volatile, like throughout the Iraq Warfare, estimates of correlation coefficients tend to increase and be prejudiced upward. All of us correct intended for the tendency as recommended by Forbes and Rigobon (2002) and estimate the time-varying relationship index making use of the Kalman filtering methodology. Our research aim is to confirm whether during the conflict the correlation among markets varied significantly. We discover that relationship increases between Italy, U. K. and France although it lessens between these types of markets and both U. S. and Germany. We all explain this kind of behaviour accumulating a Country-specific exposure index considering jointly the immediate involvement inside the War as well as the economic linkages with Korea, measured in terms of oil imports. JEL: G14, G15, G22. Key words: currency markets interdependence, Event Analysis, Korea War.

1 . Introduction

About 12 Sept. 2010 2002 U. S. Leader George Watts. Bush warns world market leaders gathered for a U. N. Basic Assembly program that the War regime of Saddam Hussein poses " a severe and gathering danger” to peace, and urges globe leaders to " push deliberately and decisively to keep Iraq to account”. Inside the same month, British Perfect Minister Tony adamowicz Blair publishes a file on Iraq's military capacity. A half-year later, in 20 March 2003, the Iraq Warfare commences; Rose bush delivers a live television address shortly after explosions reeleds Baghdad, signalling the start of the US-led advertising campaign to overthrow ? topple Iraqi head Saddam Hussein. During these six months, the intercontinental community is definitely split. The U. S i9000. A. and the U. E., on one part, take military action, and Germany and France around the others, call for a diplomatic answer to the problems. Seldom current diplomatic history have the phrases of friend nations been so in contention about such an important issue. Therefore, it is important to research the stock markets reactions from belligerent and war-averse Countries to " War news”. To the extent, all of us examine by using a event examine methodology the consequences of War's crucial events out there indexes in the U. S. and the Western greatest financial systems (i. at the. Germany, Portugal, Britain, and Italy). We discover that 4 events are significant on more than one marketplace. The 1st event, U. S. Director Statement handling the Un warning of Iraqi menace (12 Sept. 2010 2003), shows a negative go back on a one-day basis. A bad effect is definitely registered also for Blix' report about Iraq's declining to deactivate (27 January 2003). In that case, U. T. ultimatum, and consequent joint French-Russian-German declaration of difference, on 17 March the year 2003, causes a significantly positive index with an aggregate five-market level. By a single Nation level, the French market reacts particularly well to this " news”. Finally, a positive return is related to the entry from the Coalition Forces in central Baghdad on 7 The spring 2003. The first and the last of those significant incidents, i. e. U. H. President Declaration on 12 September 2002 and Parti entry in central Baghdad on 7 April 2003, are after that used to determine the uncertainty period related to the War. During this period the mean index variance in the five market segments is indeed...

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