Impact of terrorism on sovereign cds premium and stock market: Case of European region and Turkey

The purpose of the study is to examine the effect of terrorist incidents, especially Islamic terrorism, on the financial markets in terms of sovereign CDS premiums and stock market. This impact has been examined by using event analysis method in the period of 2008-2017 in 9 countries which takes place Belgium, Denmark, France, Germany, Italy, Spain, Sweden, United Kingdom and Turkey. In the study, it was examined whether terrorist incidents affected the behavior of CDS premiums and stock market in terms of returns and volatility. The data used in the study were obtained from the Thomsan Reuters data base, which constitutes the closing prices of the CDS premiums and shares of the countries with 5 years maturity. While in the European region, only Islamic terrorism has been considered for the eight countries, ISID, PKK and FETO distinction is made for Turkey. As a result of the study, countries did not show any significant difference in terms of stock returns and 5-year CDS premium incomes at 10, 20, 30 and 45 days after the terrorist attacks except for a few exceptions. In addition, the volatility of countries in both markets showed a similar behavior, showing a statistically significant difference compared to the pre-terrorism case. Keywords: Terror, Sovereign CDS Premium, Event Study, Return, Volatility