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The Effect of 9/11 on the Stock Market Volatility Dynamics: Empirical Evidence from a Front Line State
International Research Journal of Finance and Economics (2008)
  • Omar Farooq
  • Sheraz Ahmed
Abstract
Did the terrorist attacks of September 11, 2001 change the volatility dynamics of stock markets? Using daily returns data from Pakistan, a front line state in the war against terror, we investigate whether important time series characteristics, for example first-order time dependence in the mean and conditional variance, the conditional variance risk premium, and the asymmetric response of the conditional variance to innovations, have changed during the post-9/11 period in comparison to these characteristics during the pre-9/11 period. Our results show that the volatility behavior changed significantly after the terrorist attacks of 9/11. We show that this sudden shift in the volatility behavior cannot be explained by the implementation of regulatory reforms. We divide pre-9/11 period into the pre- and the post-reform periods and show that the volatility behavior during both of these periods was qualitatively the same.
Keywords
  • Volatility Dynamics; Emerging Markets
Publication Date
2008
Citation Information
Omar Farooq and Sheraz Ahmed. "The Effect of 9/11 on the Stock Market Volatility Dynamics: Empirical Evidence from a Front Line State" International Research Journal of Finance and Economics Vol. 16 (2008)
Available at: http://works.bepress.com/omar_farooq/3/