The effect of the war risk: a comparison of the consequences of the two Iraq wars

This paper measures the effect of the two Iraq wars on some Italian and US financial variables using the heteroskedasticity-based estimation technique (Rigobon and Sack, NBER WP No. 9640, 2003). Our results show that it is not possible to trace a general pattern in the behaviour of the international markets following a period of political and economic instability such as a war. The risk of war caused significant effects on financial markets in 2003; no effect appeared in 1990. The results underline a similar response between the different countries we analyse. Both Italian and American markets reacted in a similar way to both wars.