Measuring The Economic Effects Of Political Events: War And The U.S. Defense Industry

Abstract

The authors make use of the Cumulative Prediction Error (CPE) technique to examine the effects of political events in the stock market. The stock price behaviour of sixteen U.S. defense industry firms was examined before and after seventeen unforeseeable political events involving military force. The authors found that significantly positive effects on stock prices appear to occur as a result of military actions. The nature and use of the CPE technique is discussed.