Unexpectedly Intriguing!
October 23, 2014

The unfortunate news of yesterday's Parliament Hill terrorist incident in Ottawa provides the background for a quick study of the impact that such events can have on the U.S. stock market. We classify these kinds of events as noise events, since they have no effect upon the fundamental drivers of stock prices, nor do they have any lasting impact upon stock prices.

But they can have a short term effect, which we'll attempt to quantify. To do that, we'll do an event analysis using the basic timeline that we've been able to put together from reports by The Globe and Mail, International Business Daily and CTV.

What we're looking for specifically in our event analysis is the point in time at which U.S. investors first came to appreciate the full seriousness of the incident, from which we can calculate the subsequent impact upon stock prices. Here, we'll be taking advantage of our previous observations that it only takes investors some two to four minutes to react to news that they were not previously expecting.

We've annotated the chart below showing the value of the S&P 500 stock market index on 22 October 2014 with the major news events documented by our timeline news sources.

S&P 500 on 22 October 2014 - Source: Google Finance

The table below lists the major events indicated by the corresponding letters shown on the chart above.

Timeline of Events for Canada's Parliament Hill Terrorist Incident on 22 October 2014
Event Time Event Description
A 9:52 AM EDT First calls to Ottawa police in connection with the first shooting at Canada's National War Memorial, wounding Corporal Nathan Cirillo, who was guarding the Memorial's Cenotaph. The suspect then crossed the street to enter the Parliament Buildings. Reports of dozens of shots follow.
B 10:12 AM EDT Reports of shots fired in the Parliament Buildings.
C 10:18 AM EDT More reports of shots fired. Canadian MPs leave Parliament for safety.
D 10:21 AM EDT Male suspect, Michael Zehef-Bibeau, is reported deceased. Sergeant at Arms Kevin Vickers is later reported to have shot the assailant outside the MPs' caucus rooms.
E 10:49 AM EDT Rideau Centre shopping mall is reported to have been evacuated.
F 11:00 AM EDT Gunfire is reported near the Château Laurier hotel, near the Parliament Buildings.
G 11:06 AM EDT University of Ottawa is locked down.
H 11:13 AM EDT Château Laurier hotel is locked down. Parliamentary security locks down all Parliament Buildings.
I 11:20 AM EDT An 8-member police SWAT team enter Parliament's Centre Block on the run.
J 11:50 AM EDT Ottawa police confirm there were at least three separate shootings.
K 12:10 PM EDT International Business Daily posts the Globe and Mail's video of the exchange of gunfire between police and at least one suspect in the Parliament Buildings. This is likely the first venue through which U.S. investors were communicated the seriousness of the incident.
L 12:12 PM EDT U.S. markets begin falling in response to the incident (these changes are driven by speculation - not by changes in the fundamental driver of stock prices.)
M 12:19 PM EDT Victims injured in shooting incidents begin arriving at Ottawa Hospital.
N 1:20 PM EDT Corporal Nathan Cirillo is reported to have died.
O 1:44 PM EDT Rideau Centre shopping mall lockdown is lifted.
P 3:45 PM EDT University of Ottawa lockdown is lifted.

The Parliamentary Buildings were still locked down when the market closed on Wednesday, 22 October 2014, with police continuing their investigation of the incident.

We see that it was the reporting of the exchange of gunfire in the Parliament Buildings at 12:10 PM EDT [K] that prompted the reaction in the U.S. stock market, as stock prices began falling as investors immediately adopted a more "safety"-oriented investing strategy - selling off stocks to capture recent gains. From 12:10 PM to the end of trading, the S&P 500 fell from 1946.16 to 1927.11 - a decline of 19.05 points, or just shy of 1% of the S&P 500's index value at the time U.S. investors learned of the seriousness of the event.

That's far less than the potential +/-3% range of the typical "noise" level that we expect for the daily variation in stock price prices that is built into our forecast model. Which is to say "hardly any impact at all." And because it's just noise, even that will quickly fade. Terrorism is the act of the impotent.

There has though been a very real loss. A much finer man than the Islamic terrorist assailant will no longer be among us, a man who died guarding a memorial to those who died in war long before him. And as did they, with honour.

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