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The Effects of War Risk on U.S. Financial Markets

Author(s)
Rigobon, Roberto; Sack, Brian P.
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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.
Date issued
2003-04-14
URI
http://hdl.handle.net/1721.1/1848
Series/Report no.
MIT Sloan School of Management Working Paper;4417-03
Keywords
War Risk, Stock Markets, Monetary Policy, Identification, Heteroskedasticity

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