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Bin Laden Death Has Little Effect on Wall Street

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Posted on May 2, 2011

Wall Street’s response to the killing of the al-Qaida leader was muted, as in “the markets didn’t give a damn.” Nor did they care about Pearl Harbor, the Korean War or even President Kennedy’s assassination.  —YL

MarketWatch:

Surprised by the stock market’s muted reaction to news of Osama Bin Laden’s death?

You shouldn’t be.

Consider a comprehensive analysis of the impact on the market of non-economic events. Despite being 20 years old, the study remains one of the standard academic works on the subject. (It was conducted by economics professors James Poterba of MIT and David Cutler and Lawrence Summers of Harvard.)

The professors designed their study to find evidence that non-economic news such as bin Laden’s has a big impact on stocks. They focused on all entries in the “Chronology of Important World Events” from the World Almanac for the period beginning with Pearl Harbor and ending with the 1987 Crash, and then eliminated from their list any events that the New York Times did not carry as a lead story and that the Times’ Business Section did not report as having affected investors.

The result was a list of 49 distinct events, such as Pearl Harbor, the Korean War, Kennedy’s assassination, and so forth. The professors then measured the average absolute return of the S&P 500 index on these days.

The professors came up with little evidence that non-economics events had a big effect on the stock market.

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By TDoff, May 2, 2011 at 10:43 pm Link to this comment

Of course Osama’s death had little effect on Wall Street. He was much too smart to invest in any of those figmental mortgage derivative scams.

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PatrickHenry's avatar

By PatrickHenry, May 2, 2011 at 3:39 pm Link to this comment

Economic terrorism is another matter.

Bernie Madoff demonstrated a financial weapon of mass destruction, how many more are out there?

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By berniem, May 2, 2011 at 3:29 pm Link to this comment

Fear not! The great and invisible hand of the exalted free market is already at work on the next OBL assuring the MIC of continued prosperity and the USA an ever increasing national debt to be repaid by the “entitlements” of an ever dwindling middle class! FREE BRADLEY MANNING!!!!!

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