TERRORIZING STOCK MARKET: INVESTING IN A RESILIENT REIT PORTFOLIO

Abstract

Since the devastating event of 9/11 attack on the World Trade Center in 2001, there has been an increase in the number of terrorist attacks around the world. This research explores the impact of the Paris Bombing that occurred on 13th November 2015 on the stock market returns of European REITs, using data obtained on the top 100 European Real Estate Investment Trusts (REITs) based on market capitalisation size. An event study methodology will be adopted in order to identify the actual impacts resulting from the Paris Bombing attack on European REITs. By controlling for variables such as key financial indicators of REITs as well as the sector the REIT belongs to, this research attempts to identify the profile of REITs that are better hedged against the negative impacts of such terrorist attacks. Through the establishment of the REIT profiles that are better hedged against the impacts of terrorist attacks, investors will be able to draw from the findings and invest more prudently in regions where terrorist attacks are more prone to happen. This research has yielded two key findings. Firstly, European REITs are a good hedge against the impacts of a terrorist attack. Secondly, the financial characteristics that were found to be statistically significant in resulting in positive abnormal returns include lower Unlevered Beta, higher Dividend Payout ratio, higher Risk Premium, and lastly lower Price-to-Book Ratio.