Core and periphery - The dual effect of terror

In this paper we analyze the impact of terrorist attacks conducted in Israel during the Second Intifada (2000-2006) on the Israeli stock market. The impact is assessed by differentiating between attacks in the center of Israel (what is termed here the core region) and attacks in the periphery (the southern and northern areas of the country). We use the event study technique to evaluate the effects of the attacks on abnormal returns on the Israeli stock market. Our major finding is that a terrorist attack in the center of Israel has a significant negative effect on the stock market on the day it happens and a significant cumulative negative effect for several days afterward. However, when the attack takes place in the periphery, it has a less significant effect and no lasting impact after the first day.