The study ‘Assassinations: Evaluating the Effectiveness of a Counterterrorism Policy Using Stock Market Data’ is by Asaf and Noam Zussman, brothers who work at Cornell University and the Bank of Israel respectively. The premise of the study is to evaluate the effectiveness of Israel’s policy of assassinating members of Palestinian terrorist organizations by examining Israeli stock market reactions to these assassinations and attempted assassinations. This works on the premise that the market reacts positively to moves that are thought to promote peace (effective counterterrorism) and negatively to moves that are seen as counterproductive to peace.Assassination is one of most controversial forms of counterterrorism for several reasons. Counterterrorist assassinations such as these could be seen as extra-judicial executions, and they can be morally objectionable most often due to the risk of hurting non-combatants. This paper considers that counterterrorist assassinations can be ineffective, or worse, counterproductive at times. The paper offers an unusual analysis of when counterterrorist assassination attempts are perceived as productive, and as counterproductive through quantitative analysis of the Tel Aviv Stock Exchange. This builds on the fact that ‘terrorism has had a significant adverse macroeconomic effect on Israel.’

The study focuses on the period of the Second (Al-Aksa) Intifada, charted from September 2000, until April 2004 (when the data was taken), a period in which 600 Israeli civilians were killed in Palestinian terrorist attacks, and Israel carried out more than one hundred known assassination attempts. Assassinations have been part of Israeli counterterrorism policy since the 1950s, but this period has seen a marked increase in their frequency, and with it an increasing debate focus in Israel on their effectiveness. This debate has to consider the destructive effect of assassination on the immediate capabilities of a terrorist organization but also the potential motivational effects on a terrorist organization, and their support base, of an attempt.

The Zussmans collated data on assassination attempts (successful and un-successful) and their success from several Israeli and Palestinian sources. Next they built a set of criteria for measuring each target’s importance, using a mixture of expert opinion and Israeli media coverage. Media coverage was used to incorporate more fully investor perception, but removes the study slightly from an attempted analysis of counterterrorist assassinations to one of market perceptions. This also means that the measure of a target’s importance is affected to a degree by the day’s other news stories. Classification of the target’s role in an organization (measured on a spectrum from military to political) was also used, but was done solely by experts.

The findings show 136 trading days in which assassination attempts took place, with an average percentage change in the Tel Aviv 25 of -0.01. On average the market did not react to attempted assassinations. This lack of reaction changes however when the targets are grouped based on their seniority and role. The Zussmans show several regressions of the data using varying group criteria, all of which find strong and significant reactions of the TASE 25 to the attempted assassination of senior terrorist targets. The results show that the market reacted negatively to the attempted assassination of a senior political leader (between a -0.7 and -1.1 percentage move) and positively to the attempted assassination of a senior military leader (between a 0.5 and 0.7 percentage move). The Zussmans also show that the market did not react to the attempted assassination of non-senior targets, whatever their role. All results were factored with the NASDAQ stock market index in order to nullify exogenous factors.

The length of time between the attempted assassination and the most recent terrorist attack on Israel, and surprisingly the success or not of the attempted assassination, were shown have an insignificant effect on the markets, whereas the number of non-combatants that died in any attempt had a negative and significant effect. The evidence also suggests that all effects persist for several days, rather than being ‘blips’ in the market, and that the Palestinian stock market, represented in the study by the Al-Quds Index, mirrored the results in the Israeli Index. This could reflect the reliance of the Palestinian economy on the Israeli economy, or perhaps show a common view regarding solutions to the conflict as held by Israeli and Palestinian investors.

The most important result of the Zussmans’ analysis is that the reaction of investor perception to assassination attempts depends on the seniority and the role of the target. The market does not react to low ranked terrorists (perhaps they are not reported?), but the assassination of a senior political leader is seen as counter productive, whereas the assassination a senior military leader it is seen as productive. This fits with the hypothesis that the military leader, in charge of planning, training, arming, etc. is much more instrumental in the short term capabilities of a terrorist organization, and is also perceived by the investors to be perceived by the Palestinians to be a ‘fair’ target — their assassination would have destructive effect on terrorist capabilities without too strong an effect on terrorist motivation. A political leader on the other hand, in charge of politics/motivation and very probably in greater contact with the Palestinian people than a military leader, would be much more of a motivational ‘liability’ to attempt to assassinate. Their death would also have a considerably smaller short term effect on the terrorist capabilities of any group.

Finally, the study does not look into any effect that the style of assassination may have, perhaps a rocket strike is perceived as more ruthless than a sniper? Obviously it is also a measure of perceptions of peace rather than actual peace. Despite this, it seems a very effective and unique study, giving insights into a very controversial Israeli defence tactic and investor mindset.


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