Abstract:

Purpose- This study investigated the financial effects of the environment of uncertainty and fear resulting from terrorist attacks on subsectors such as industry, tourism, and service. Methodology- In order to examine the interaction between the variables, EGARCH models, which are frequently used in the econometric literature and take into account the asymmetric effect of shocks, were used. Unlike studies in the literature, terrorist attacks not only within the country but also outside the country were taken into consideration in this study. Findings- According to the findings obtained, the terrorist attacks and uncertainty environment in both Turkey in the developing country status and the US in the developed country status have an adverse affect the sub-sectors in financial markets at different levels. This adverse impact has been found that is not equal for each sub-sectors, and the tourism sector is more affected by terrorist attacks compared to the industrial and service sectors. Also, it has been found that news about terrorist attacks affected volatility more than good news in the same period. Conclusion- Considering the borderless structure and the size of the trade volume of financial markets in the globalizing world, it cannot be thought that terrorist attacks will not affect another country while they occur in one country. In view of the share of the tourism sector in the GDP of Turkey and the rational behavior of human factors in an environment of uncertainty and fear, the fact that the environment of uncertainty most affects this sector gives a result that is in line with expectations. In addition, it has been determined that financial market shocks resulting from the activities classified as terrorism experienced by countries with a large economic volume and market share in the world, especially the USA, have a short-term spill over effect on the global market. In this context, although ensuring goverment security creates an environment of trust, measures to be taken with the joint work of global security organizations to minimize these effects will help to protect the stable structure of the markets more effectively.

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