International Conflicts: How Varying Crises Affect the United States Equity Market

Abstract

This study examines the economic effect of international conflict onset on the United States equity market by implementing an event study framework. Additionally, varying conflict characteristics are analyzed to investigate whether unique features within crises impact the stock price reactions. From a sample of 131 inter-state conflicts during the period of 1980 to 2015, this study finds that altogether, global conflicts do not normally affect the US stock market. However, upon distinguishing for varying elements, significant responses can be seen. Direct US military activity, high levels of violence, internal challenges to existing regimes and secessionist conflicts display strong negative reactions. Covert or semi-military US activity exhibit positive reactions. When classifying according to the geographic location of crises, the Middle East, Asia and Central America portray negative responses, while Europe depicts positive responses. The findings of this thesis confirm that while not all international events are perceived equally, certain conflicts impact the United States more than others.