1. Introduction

There are different environmental factors that have impact on the operations of business concerns as well as financial markets. Terrorism is considered to be an external risk which is difficult to define. As per Chulia et al., (2009) terrorism is considered to be a phenomenon in which use of violence and threat is done to attain specific targets, and its objective is to spread fear among people, are against the humanitarian rules/laws and causes loss to the government and state. The main purpose of this research is to analyse the impact of terrorist activities on Turkish stock exchange market and stock exchange index. The terrorism has become a main threat around the world from past many years and it has economic effect as well (Abadie and Gardeazabal, 2008). Moreover, it was also stated that the terrorist attacks can negatively influence the stock and financial markets of any country. The stock market agents have to make strategies and plans to cope with different risks including terrorism, political instability, natural disasters and war. It was mentioned by Feridun (2011) that Turkey has experienced different terrorist attacks and shocks in past and various terrorist groups have operated in this country, having connections with international terrorist groups including Al_Qaeda. According to Berrebi and Klor (2010) the Turkish stock exchange is one of the emerging stock markets around the world and it has more than 300 listed companies. In addition, the terrorism activities in the past negatively impacted the Turkish stock exchange market. Moreover, the terrorist’s activities in future can also have an impact on the TSE. In this research, it will be analysed that how the stock exchange market of Turkey was impacted due to past terrorism activities and how the market agents behaved and handled the situation. Different indices from Turkish Stock Exchange market will be taken under consideration for calculations. In this research, the positivist approach will be used and data for past 10 years will be gathered and analysed for 10 different sectors in Turkey. The impact of terrorism on stock indices of 10 major sectors will be analysed in detail and different statistical tests will be carried out for analysis. There will be different sections of this research including literature review, methodology and analysis, and the whole research will be concluded at the end. Moreover, various past papers and researches will be studied to analyse the efficiency of Turkish Stock Exchange market.

Literature review

In this section of research, the past studies and researchers conducted by different scholars related with impact of terrorism on stock exchange markets will be discussed. However, the studies are conducted in different context and in different countries because the terrorist activities are present around the world. With the help of these studies, a background for study will be drawn and it will provide directions for the researcher.

As per study conducted by Abadie and Gardeazabal (2008) terrorism decreases the extern investment returns because of high uncertainty, and that is why the changes in the terrorism intensity can lead towards movements of capital from one country to another.  This indicates that the country which faces high intensity of terrorism can lose their capital and financial resources. It was mentioned by Chen and Siems (2004) that different countries can be negatively influenced due to terrorism activities in one country. They focused on the terrorism activity of 9/11 in US and found that it had negative impact on the US capital markets along with global stock exchange markets. In addition, the impact of 9/11 was also studied by Nikkinen et al, (2008) and they found that the terrorism activity in US influenced more than 53 markets around the globe. It was also mentioned by the researchers that high volatility as well as short-run negative effects differ across countries on the basis of intensities of their integration into the international economy. This indicate that the terrorism activities happening in one country not only effects the financial and capital markets in the local economy but can have highly negative impacts on international economies and stock exchanges.

Drakos (2010) focused on one of the biggest terrorism activity in US, which is 9/11 attacks and he specifically paid attention on the share values of airline sector. He found that the stock market valuation of airline shares was harmfully and considerably impacted because of changed risk perceptions by customers. Due to this issue, the demand of air level decreased and consumers’ attention towards insurance increased. Due to this, the share value of airlines decreased on the stock exchange and the market agents had to face different issues and problems. Eldor