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

16 Pages Posted: 5 Apr 2003 Last revised: 5 Oct 2022

See all articles by Brian P. Sack

Brian P. Sack

Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

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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.

Suggested Citation

Sack, Brian P. and Rigobon, Roberto, The Effects of War Risk on U.S. Financial Markets (April 2003). NBER Working Paper No. w9609, Available at SSRN: https://ssrn.com/abstract=392996

Brian P. Sack

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Roberto Rigobon (Contact Author)

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