Working Paper

The effects of war risk on U.S. financial markets

Abstract: This paper measures the effects of the risks associated with the war in Iraq on various U.S. financial variables using a heteroskedasticity-based estimation technique. The results indicate that increases in what we call the \"war risk\" factor caused declines in Treasury yields and equity prices, a widening of lower-grade corporate spreads, a fall in the dollar, and a rise in oil prices. This factor accounted for a considerable portion of the variances of these financial variables over the three months leading up to the arrival of coalition forces in central Baghdad.

Keywords: War - Economic aspects;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2003

Number: 2003-18