Reaction of Banks and Insurance Companies’ Stocks to Acts of Terrorism - An Event Study Approach

Abstract

The paper examines the reaction of banks and insurance companies’ stocks listed on the Nigerian Stock Market to two major terrorist events (the bomb blast on October 1, 2010-Nigeria’s 50^th independence anniversary day, and the bombing of the United Nation’s (UN) embassy office on August 26, 2011, all in Abuja). The data stream for the study consisted of the Nigerian Stock Exchange Daily Official list on some selected banks and insurances stocks over the event period of eight (8) days for both the United Nation’s (UN) embassy office bombing and the October 1 bomb blast respectively. Using the standard event study methodology and the single-factor market model, the study finds that of the two terrorist events, only the October 1, 2010 attack resulted in significant negative abnormal returns in the Nigerian stock market. The UN office bombing, though expectedly resulted in a negative abnormal return, the abnormal return was however not statistically significant at 5% level and only occurred a day after the event day, suggesting that the stock prices reacted rather slowly. The study therefore recommends that the federal government of Nigeria should explore ways of reducing the frustration of her citizens because the consistent neglect by successive governments to improve on the well-being of the commoners in this oil-rich nation has always led to frustration and aggression, and these are popular substratum for terrorism.

Keywords: Terrorism, banks, insurances companies, event study, stock market.