Standing tall when the wind shifts: financial market responses to elections, disasters and terrorist attacks

A tsunami in Indonesia. A bomb in Madrid. An election in the United States. These events not only capture headlines, but also affect the investment climate in their home countries and even throughout the globe. In this paper, we compare how terrorist incidents, natural disasters and elections affect financial markets. We expect that the predictability of each of these shocks influences its impact on the performance of national equity markets. Further, we explore whether these shocks are transmitted across borders to other markets. We contend that trade and exchange rate linkages create opportunities for market actors to diversify their portfolios in the wake of an exogenous shock. Policymakers may be able to insulate their markets with institutions like capital account openness.