Reacting to the eruption of conflict: An event study on the January 2020 U.S. - Iran political escalations and the American defence industry

Sammanfattning: Through conventional event study methods, we investigate how the shares of American defence companies reacted to arguably one of the most central developments in U.S. foreign policy in recent history - the intensified actions between the U.S. and Iran during the start of 2020. Furthermore, we aim to explain the differences in stock price reactions between the defence companies based on individual company characteristics. A portfolio of the industry constituents reacted positively, indicating the event's informational importance to the sector. However, only eight out of 28 publicly traded military contractors experienced significant abnormal returns due to the news on an individual level. While most of our selected financial ratios do not show significance, we conclude that the respective companies' share of revenue originating from defence activities is significant in explaining the observed variation in abnormal returns.