On the impact of terrorism on exchange rate returns and volatility in OECD countries

This paper aims to answer the question if terrorist attacks affect exchange rate returns and exchange rate volatility. It does this by ARMA-GARCH modeling 507 different terrorist events in 8 different currencies using daily exchange rate data. It finds no conclusive evidence on the link between terrorism and the level of the return of the local exchange rate. It does find that in times of terrorist activity, volatility appears to be significantly lower in the investigated countries. Lastly, it finds no difference for the effects when attacks occur in regions that regularly experience violence.