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An Empirical Investigation of the Short Term and Long Term Impact of Recent International Terrorist Attacks on the Japanese Equity Market

In this paper, the impact of five recent terrorist attacks on equities listed on the Japanese Stock Exchange is examined. We analyse how these events affect the different sectors in Japan using the Global Industry Classification Standard. Using parametric and non-parametric tests, we investigate the relationship between stock returns for equities listed in these sectors and terrorist attacks. The empirical evidence shows significant short-term negative abnormal returns around the September 11 attacks and to a lesser extent, the London and Bali Bombings. There is also evidence of a weak positive equity response to the Bali bombing, and a weak negative response to the Madrid attack in the Japanese market. We document negative industry abnormal returns as high as 9.67% in response to the September 11 attack. Our findings show that systematic risk of certain sectors increased after the events of September 11, but remained unchanged for the other attacks.