The Impact of September 11 on Investors' Risk Aversion

Abstract

The September 11, 2001, terrorist attacks provide a rare opportunity to witness a dramatic shift in investors' risk aversion. The attacks had a huge impact on investors not only because of the significant damage that occurred in both lives and economic value but because of the nearly total surprise achieved by the attackers. This article uses exchange-traded funds (ETFs) to analyze equity returns, beta values, and security market line slopes both before and after the attacks. Using ETFs allows us to also look at the performance of individual industrial indexes and sectors. Finally, we offer some guidance to investors who may unfortunately find themselves facing a similar situation in the future.