An investigative study of links between terrorist attacks and cryptocurrency markets

Our objective in this paper is to explore the impact of 21 terrorist attacks on the risk and return of cryptocurrencies. This is motivated by the rapid increase in Bitcoin and other cryptocurrency prices in conjunction with uncertainty about cryptocurrency fundamental value and how this value is determined. Using daily cryptocurrency returns and the event study methodology, we estimate cryptocurrency abnormal returns around terrorist activities. Asset pricing models are fitted with interaction variables to identify the impact of individual attacks. ARCH models are used to determine changes in systematic risk. Our findings indicate that terrorist attacks positively contribute to the returns of cryptocurrencies whilst the attacks also result in short-term risk shifting behavior for different cryptocurrencies.