The Effects of War Risk on U.S. Financial Markets
Author(s)Rigobon, Roberto; Sack, Brian P.
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.
MIT Sloan School of Management Working Paper;4417-03
War Risk, Stock Markets, Monetary Policy, Identification, Heteroskedasticity