An Examination of "New" and "Old" Terrorism Using High-Frequency Data

Abstract

The impact of large-scale terrorist attacks has clear implications for financial market participants and corporate risk management. In this paper, that impact is measured in the intraday trading patterns of participants in the London stock market. A two-scale realized volatility (TSRV) estimator is used to provide an insight into market activity in a number of FTSE-100 companies in the days around the Madrid (11M) bombing. Furthermore, empirical trading patterns, reflected in trade volumes and five-minute realized volatility, are used to identify changes in risk perceptions in the immediate aftermath of the 11M attack. Intraday tick data illustrates the distinct perceptions of risk associated with "old" terrorism and "new" terrorism as represented by Al-Qaeda.