Are stock markets efficient in the face of fear? Evidence from the terrorist attacks in Paris and Brussels

We analyze the dynamics of airline stock prices surrounding the recent terrorist attacks in Paris and Brussels. We find that the adjustment of stock prices is consistent with the assumption of efficient capital markets. Analyzing 27 of the largest U.S., Canadian, and European airlines, we show that the terrorist attacks in Paris and Brussels had a strong short-term effect on the valuation of airline companies. However, this effect was significantly smaller following the Brussels strikes, despite the apparent direct impact of the bombings of the Brussels airport on the airline industry. Furthermore, we find that smaller, less geographically diversified, airlines are significantly less affected by the attacks than their global peers.