Working Paper: NBER ID: w9609
Authors: Roberto Rigobon; Brian Sack
Abstract: This paper measures the effects of the risk of war on nine U.S. financial variables using a heteroskedasticity-based estimation technique. The results indicate that increases in the risk of war cause 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 war risk factor' accounted for a considerable portion of the variance of these financial variables over the ten weeks leading up to the onset of war with Iraq.
Keywords: war risk; financial markets; heteroskedasticity
JEL Codes: E4; E0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| War Risk (Z1) (H56) | Treasury Yields (Y1) (E43) |
| War Risk (Z1) (H56) | Corporate Yield Spreads (Y2) (G12) |
| War Risk (Z1) (H56) | Dollar Value (Y3) (Y10) |
| War Risk (Z1) (H56) | Oil Prices (Y4) (L71) |