War and stock markets: The effect of World War Two on the British stock market

Hudson, Robert; Urquhart, Andrew

Abstract

© 2015 Elsevier Inc. All rights reserved. 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'.

Citation

Hudson, R., & Urquhart, A. (2015). War and stock markets: The effect of World War Two on the British stock market. International review of financial analysis, 40(July), 166-177. https://doi.org/10.1016/j.irfa.2015.05.015

• Acceptance Date: May 13, 2015
• Online Publication Date: May 22, 2015
• Publication Date: 2015-07
• Deposit Date: May 28, 2015
• Publicly Available Date: May 28, 2015
• Journal: International review of financial analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 40
• Issue: July
• Pages: 166-177
• DOI: https://doi.org/10.1016/j.irfa.2015.05.015
• Keywords: Investor sentiment; WWII; Structural breaks; Event study; FT30
• Public URL: https://hull-repository.worktribe.com/output/374514
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S1057521915000976
• Additional Information: This article is maintained by: Elsevier; Article Title: War and stock markets: The effect of World War Two on the British stock market; Journal Title: International Review of Financial Analysis; CrossRef DOI link to publisher maintained version: http://dx.doi.org/10.1016/j.irfa.2015.05.015; Content Type: article; Copyright: Copyright © 2015 Elsevier Inc. All rights reserved.
• Contract Date: May 28, 2015