The Effects of War Risk on U.S. Financial Markets
16 Pages Posted: 5 Apr 2003 Last revised: 5 Oct 2022
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The Effects of War Risk on U.S. Financial Markets
The Effects of War Risk on U.S. Financial Markets
Date Written: April 2003
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.
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