Terrorist Attacks on September 11, 2001: A Test of Market Efficiency in the Insurance Industry

Document Type

Article

Publication Date

Spring 2023

Abstract

This study tests market efficiency by analyzing the effects of the September 11, 2001, terrorist attacks on the stock market, with a specific focus on the insurance industry. This study tested the market efficiency by looking at fifteen separate insurance firms and comparing them to S&P 500 data. The study conducted a semi-strong form test of the market's reaction to the terrorist attacks on September 11, 2001. The test showed how 9/11 had a negative impact on the market and the insurance industry. The results show that in the pre-event period the market was relatively stable leading up to the event day. The day before the event the sample exhibited the highest risk adjusted rate of return for the week, but once the attack happened, returns declined significantly. The stock market was closed for nearly a week after the event and when it reopened it had the biggest loss in history. An industry most impacted was insurance. While insurance companies were significantly negatively affected immediately following the attack, they, along with the economy, were fortunate enough to remain stable and bounce back quickly. Results support semi-strong efficiency.

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