The Effects of War Risk on U.S. Financial Markets
Name
4417-03.pdf
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239.16 KB
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Adobe PDF
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7aabf221758f35f49b0c88147a7a9215
Author(s)
Rigobon, Roberto
Sack, Brian P.
Date Issued
April 14, 2003
Series/Report no.
MIT Sloan School of Management Working Paper;4417-03
Abstract
This paper measures the effects of the risk of war on nine U.S. financial variables using a heteroskedasticity-based estimation technique. The results indicate that increases in the risk of war cause declines in Treasury yields and equity prices, a widening of lower-grade corporate spreads, a fall in the dollar, and a rise in oil prices. This "war risk factor" accounted for a considerable portion of the variance of these financial variables over the ten weeks leading up to the onset of war with Iraq.
Subjects
War Risk
Stock Markets
Monetary Policy
Identification
Heteroskedasticity
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