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War and stock markets: the effect of World War Two on the British Stock Market

War and stock markets: the effect of World War Two on the British Stock Market
War and stock markets: the effect of World War Two on the British Stock Market
This paper studies the effect of World War Two (WWII) on the British stock market. It contributes to the literature in several ways. First, this paper thoroughly investigates the impact of historically major events on the British stock market using a variety of empirical approaches in order to ensure a comprehensive examination of the impact of WWII on British stock returns. We utilise an event study of pre-selected historically major events, an investigation of the possible causes of the largest price movements as well as utilising an endogenous procedure testing for structural breaks. Secondly we extend the literature on behavioural finance and investor sentiment in extreme circumstances. In particular we examine the ‘negativity effect’, documented by Akhtar et al. (2011) and determine whether stock returns reacted more strongly to negative events or positive events. Overall we find limited evidence of strong links between war events and market returns although there is support for the ‘negativity effect’.
investor sentiment, WWII, structural breaks, event study, FT30
1057-5219
166-177
Hudson, Robert
60672e7a-4142-4354-9a41-552a3db97157
Urquhart, Andrew
ee369df1-95b5-4cdf-bc24-f1be77357c03
Hudson, Robert
60672e7a-4142-4354-9a41-552a3db97157
Urquhart, Andrew
ee369df1-95b5-4cdf-bc24-f1be77357c03

Hudson, Robert and Urquhart, Andrew (2015) War and stock markets: the effect of World War Two on the British Stock Market. International Review of Financial Analysis, 40, 166-177. (doi:10.1016/j.irfa.2015.05.015).

Record type: Article

Abstract

This paper studies the effect of World War Two (WWII) on the British stock market. It contributes to the literature in several ways. First, this paper thoroughly investigates the impact of historically major events on the British stock market using a variety of empirical approaches in order to ensure a comprehensive examination of the impact of WWII on British stock returns. We utilise an event study of pre-selected historically major events, an investigation of the possible causes of the largest price movements as well as utilising an endogenous procedure testing for structural breaks. Secondly we extend the literature on behavioural finance and investor sentiment in extreme circumstances. In particular we examine the ‘negativity effect’, documented by Akhtar et al. (2011) and determine whether stock returns reacted more strongly to negative events or positive events. Overall we find limited evidence of strong links between war events and market returns although there is support for the ‘negativity effect’.

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More information

Accepted/In Press date: 13 May 2015
e-pub ahead of print date: 22 May 2015
Published date: July 2015
Keywords: investor sentiment, WWII, structural breaks, event study, FT30
Organisations: Centre of Excellence for International Banking, Finance & Accounting

Identifiers

Local EPrints ID: 377137
URI: http://eprints.soton.ac.uk/id/eprint/377137
ISSN: 1057-5219
PURE UUID: 178a1d8b-3c7b-47d9-a250-2f8e26e6b894
ORCID for Andrew Urquhart: ORCID iD orcid.org/0000-0001-8834-4243

Catalogue record

Date deposited: 26 May 2015 11:06
Last modified: 15 Mar 2024 05:16

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Contributors

Author: Robert Hudson
Author: Andrew Urquhart ORCID iD

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