Journal of Comparative Economics xxx (xxxx) xxx–xxx

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Journal of Comparative Economics

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Review

Public attention to “Islamic terrorism” and stock market returns

⁎
Imane El Ouadghiria, Jonathan Peillexb,
a
Léonard de Vinci Pôle Universitaire, Research Center, Paris La Défense, France & EconomiX-CNRS, University of Paris Nanterre, France
b
Léonard de Vinci Pôle Universitaire, Research Center, Paris La Défense, France & CRIISEA, Université de Picardie Jules Verne 10, Placette Lafleur, BP
2716, 80027 Amiens Cedex 1, France

A R T IC LE I N F O ABS TRA CT

Keywords: Does public attention to Islamic terrorism affect the performance of Islamic and conventional
Difference-in difference analysis indices? We answer this question by empirically examining the effects of US public attention to
Islamic indices Islamic terrorism on returns of US Islamic and conventional indices between 2004 and 2017. US
Public attention public attention to Islamic terrorism is measured using Google Search Volume, which reflects
Terrorism
active public attentiveness, and media coverage, which measures passive attentiveness. We test
its effect on the stock returns of Islamic and conventional indices by using difference-in-differ-
ence analysis. The results indicate that US public attention to Islamic terrorism negatively affects
US Islamic indices, suggesting that investors may make amalgams between terrorism and Islamic
finance. These clichés may lead them to sell Sharia-compliant assets when US public attention to
Islamic terrorism is high. Taken together, our findings provide new evidence and financial im-
plications for investors and providers of Islamic financial products.

1. Introduction

The World Trade Center attacks in 2001 have caused some US media to make controversial links between Islam and terrorism
(Sultan, 2016) and between terrorism and Islamic finance (Ali and Syed, 2010). More recently, following the mass shooting in San
Bernardino in 2015 and in Orlando in 2016, Donald J. Trump signed a “Muslim ban” that is, an executive order intended to ban
immigration from six Muslim-majority countries. He also made a questionable association between Islam and terrorism by declaring:
“Our obligation is to serve, protect, and defend the citizens of the United States. We are also taking strong measures to protect our
nation from radical Islamic terrorism” in his first address as the forty-fifth president of the United States. This sort of association may
lead some US citizens to suspect everything related to Islam, including Islamic finance (Warde, 2009). In this context, our paper
empirically explores the possible link between US public attention to Islamic terrorism and returns of US Islamic indices. The term
“Islamic” is used for both sets of phenomena, and we wonder whether the salience of the unquestionably negative phenomenon
affects demand for the other phenomenon.
The psychological fear that results from terrorist attacks may have considerable consequences for financial and economic deci-
sions (Kollias et al., 2013; Karolyi, 2006; Mirza and Verdier, 2008). These events decrease investor confidence and produce financial
instability (Chesney et al., 2011). Even though the vast majority of terrorist attacks in the United States have been perpetrated by
domestic terrorists (94%), the terrorist attacks committed between 2008 and 2012 “in the name of Islam” are overrepresented on
network and cable news (Dixon and Williams, 2015). Kearns et al. (2017) show that terrorism between 2011 and 2015 whose
perpetrators claim to act in the name of Islam still receives disproportionate media coverage. Indeed, controlling for target type,

⁎
Corresponding author.
E-mail addresses: imane.el_ouadghiri@devinci.fr (I. El Ouadghiri), jonathan.peillex@devinci.fr, jonathanpeillex@hotmail.fr (J. Peillex).

https://doi.org/10.1016/j.jce.2018.07.014
Received 29 June 2017; Received in revised form 2 July 2018; Accepted 10 July 2018
0147-5967/ © 2018 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.

Please cite this article as: El Ouadghiri, I., Journal of Comparative Economics (2018), https://doi.org/10.1016/j.jce.2018.07.014
I. El Ouadghiri, J. Peillex Journal of Comparative Economics xxx (xxxx) xxx–xxx

fatalities, and the arrest of perpetrators, they observe that these attacks received, on average, 449% more coverage than other attacks.
This disproportionate media coverage may amplify fear among US investors because of terrorist attacks perpetrated with “Islamic
motives.”
Many empirical studies have examined the financial effects of “mega-terrorist” events committed “in the name of Islam,” such as
the three September 2001 attacks, bombings in Bali in 2002 and 2005, bombings in Madrid in 2004, bombings in London in 2005,
and terrorist attacks in Paris in 2015 (e.g., Kollias et al., 2011; Apergis and Apergis, 2016; Brounen and Derwall, 2010; Chesney et al.,
2011; Graham and Ramiah, 2012; Richman et al., 2005). They find that, overall, these events negatively affect stock prices and
increase systematic risk. Moreover, they show that the financial market reaction to these events depends on markets, industries, and
terrorist attacks themselves. In our study, we contribute to this strand of the literature by suggesting that public attention to Islamic
terrorism may play a role at least as important as the attacks themselves in the financial decisions of investors.
Two opposing hypotheses can predict the effects of US public attention to Islamic terrorism on returns of US Islamic indices. First,
we can expect no significant relationship because investors do not have stereotypes and know that no rational link exists between
terrorism and Islamic finance. Or, second, the increase in US public attention to Islamic terrorism might negatively affect returns of
US Islamic indices if investors associate terrorism with Islamic finance. For instance, Ali and Syed (2010) show that, after the
September 11 attacks, several media outlets attempted to connect the Islamic financial industry with terrorist funding. Moreover,
45% of Americans believed that Islam encourages violence more than other religions (Pew Research Center, 2007), and 61% of them
had a generally unfavorable opinion of Islam (Brookings, 2015). Under this second hypothesis, the amplification of fear and in-
security may lead investors to disregard Islamic finance and, in turn, to punish related assets by selling them or by looking for other
financial instruments. By engaging in herding behaviors, even investors who are sensitive to Islamic finance, such as Muslim in-
vestors, can be induced to flee this market to reduce the risk of losses. In fact, several studies demonstrate that investors tend to
engage in herding behaviors during periods of heightened uncertainty (Prechter and Parker, 2007; Schmitt and Westerhoff, 2017).
Furthermore, public attention to Islamic terrorism can also affect relations between Muslim countries and the United States.
Therefore, investors from Muslim countries may invest less in US securities that are Sharia-compliant when attention to Islamic
terrorism is high. This possibility is relevant especially for oil-rich, reserve-rich, oil-exporting Gulf countries because most of their
reserves are invested in US securities officially or through sovereign wealth funds.
In order to test our hypotheses, we employ difference-in-difference (DID) type of analysis in a panel regression framework to
assess the differential effects of (1) terrorist attacks perpetrated in the name of Islam, (2) active attention, and (3) passive attention to
Islamic terrorism on weekly stock prices of two US Islamic indices versus their two conventional counterparts between 2004 and
2017.
The remainder of the paper is structured as follows. Section 2 describes data and summary statistics. Section 3 presents the
methodology. Section 4 displays the main empirical results, and Section 5 presents robustness checks. Section 6 concludes.

2. Data and summary statistics

To measure the financial effects of US public attention to Islamic terrorism on Islamic and conventional indices, we use three types
of datasets. The first and second datasets include information on active and passive attention to Islamic terrorism respectively. The
third one includes weekly prices of US financial market indices.

2.1. Active attention to Islamic terrorism

Islamic terrorism generally refers to acts of terrorism by individuals who claim to conduct them “in the name of Islam.” According
to Jackson (2007), this notion emerged from studies on religious terrorism in the 1980s. After the attacks on September 11, 2001, the
use of this term in official speeches, official documents, books and articles published by journalists, public intellectuals, and aca-
demics grew significantly. Since then, it has even been used by the president of the United States Donald J. Trump during his
inaugural address. In addition, Wikipedia has a page dedicated to Islamic terrorism. Nowadays, it seems as if the Islamic terrorism
discourse is deeply embedded in Western societies. Although this term crystallizes fear and insecurity, it is very much open to
criticism. Indeed, the use of the politicized term Islamic terrorism implies a connection between Islam and terrorism. For
Holmes (2016), behind the discourse on Islamic terrorism lies “a conjecture that violence is inherent to Muslim societies, with the
term itself signifying a unified nexus between acts of terror and practices of Islam.” Used in texts and discourses often characterized
by many misconceptions, the concept of Islamic terrorism is, according to Jackson (2007, p. 395), “damaging to community relations
and largely counter-productive in the struggle to control subaltern violence in the long run.”
Following the growing literature on the financial effects of investors’ interests (Aouadi et al., 2013; Da et al., 2011;
Vozlyublennaia, 2014), we use the Google Search Volume (GSV) index as a proxy for active US public attention on the keyword
Islamic terrorism. Computed by Google Trends, GSV is a relative time-series measure of search frequency of specific keywords at the
time and location specified by the user. The weekly GSV for a keyword is the number of searches for that keyword divided by the total
searches of the geography and time range it represents. The resulting numbers are then scaled on a range from 0 to 100. A value of 0
means that the search volume is too low to provide meaningful statistics while a value of 100 represents the highest level of search
activity during the sample period. These weekly data are available beginning in 2004. One advantage of using GSV is that Google
maintains a very high market share in the United States. According to Statista, in January 2017, Google was the leading search engine
(63.4% market share), well ahead of Microsoft and Yahoo (22.6% and 11.6% market share respectively). According to
Ripberger (2011), GSV may be considered as a tool for estimating the active portion of public attention to a topic. Indeed, searching

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on Google for information on Islamic terrorism requires the user to invest time and, to a certain extent, energy to find out more about
this issue. Therefore, it can be assumed that individuals who are taking this action are actively interested in this phenomenon.
We have compared the relative frequency of different searches related to Islamism and terrorism. To help us to collect these terms,
we used the tool Google Correlate,1 which provides correlations among searches on Google. For example, among the terms “Islamist
terrorism,” “Islamist terrorist,” “Islamic terrorist,” “Islamic extremist,” “Islamic extremism,” “Islamist extremist,” “Islamist ex-
tremism,” “Islamic terror,” “Islamist terror” and “Islamic terrorism,” we found that the most widely used search term in the United
States is “Islamic terrorism.” Fig. 1 illustrates the evolution of active attention to Islamic terrorism in the United States over the period
2004–2017. Each circle represents a terrorist attack perpetrated “in the name of Islam.” The apparent link between these attacks is
shown chronologically in Panel A of Table 2, and active attention to Islamic terrorism indicates that the use of GSV is adequate. The
2015 San Bernardino attack and the 2016 mass shooting in Orlando seem to had a particular impact on US public attention. In
addition, the data suggest that the attacks with the most casualties (i.e., Madrid 2004, London 2005, and Paris 2015) are not
necessarily those that have generated the most active attention to Islamic terrorism. This is consistent with the study of Ruigrok and
van Atteveldt (2007), which shows that geographic proximity is a strong determinant of attention paid to terrorist events.

2.2. Passive attention to Islamic terrorism

If individuals do not search actively for information on the web, it does not necessarily mean that they are unaware of Islamic
terrorism and lack an opinion about this phenomenon. For instance, they may have read or heard information about Islamic terrorism
in the mass media. This possibility is especially relevant for Islamic terrorism because this issue receives enormous media coverage
(Kearns et al., 2017). We approximate this rather passive public attention by media coverage. Media coverage is measured by the
number of weekly newspaper articles related to Islamic terrorism published in the United States between 2004 and 2017. Following
Fang and Peresse (2009) and Solomon et al. (2014), we focus on four US newspapers in wide circulation: The New York Times, USA
Today, The Wall Street Journal, and The Washington Post. These four newspapers account for more than 10% of total daily circulation
in the United States (Solomon et al., 2014), and, therefore, we assumed that they are read by the majority of typical US investors
(Fang and Peresse, 2009). We used the Factiva database to build our media coverage sample. It includes 91,709 articles that contain
at least one of the following terms: “Islamic terrorism,” “Islamist terrorism,” “Islamist terrorist,” “Islamic terrorist,” “Islamic ex-
tremist,” “Islamic extremism,” “Islamist extremist,” “Islamist extremism,” “Islamic terror,” “Islamist terror,” and “Islamic terrorism.”
Among the articles, 36% appeared in The New York Times, 31% came from The Washington Post, 26% were published in The Wall Street
Journal, and 7% appeared in USA Today.
Fig. 2 shows the evolution of US media coverage of Islamic terrorism in the United States between 2004 and 2017. As a whole, this
evolution is quite similar to that presented in Fig. 1. We observe a close relationship between terrorist events and US media coverage
of Islamic terrorism. Moreover, the number of newspapers articles published on Islamic terrorism since the end of 2014 grew. This
could be explained, in particular, by the increasing number of attacks perpetrated “in the name of Islam” against Western countries.
Most peaks without circles come from articles published on the anniversary of the September 11 attacks. Finally, the big peak in
September 2014 is not explained by a specific attack but by a speech of Barack Obama. Indeed, on September 10, 2014, he stated
during his address to the nation: “Islamic State is not ‘Islamic.’ No religion condones the killing of innocents, and the vast majority of
Islamic State victims have been Muslim.”

2.3. The financial market indices

We use the Bloomberg database to collect weekly prices on four US indices: the Dow Jones Islamic Market US Index, the FTSE
Shariah USA Index, the Dow Jones US Total Stock Market Index, and the FTSE USA Index. For each index, we consider available
weekly prices for the period January 4, 2004, to August 25, 2017. Returns of US indices are calculated as follows:
Ri, t = LN (Pi, t / Pi, t − 1) (1)

These Islamic indices are widely accepted in the literature on Islamic finance (Ashraf, 2016; Jaballah et al., 2018). They reflect the
performance of US companies that pass qualitative and quantitative screenings applied by Sharia scholars.2 The qualitative limita-
tions exclude companies involved in activities such as alcohol, banking, gambling, insurance, pork, pornography, tobacco, and
weapons. The quantitative limitations allow to ensure that the degree of indebtedness, interest income, and company's accounts
receivable do not reach certain thresholds (e.g., Peillex et al., 2018). These thresholds and especially how they are calculated may
differ slightly between the Dow Jones Islamic Market US Index and the FTSE Shariah USA Index. For example, while the Dow Jones
Islamic Market US Index uses the trailing 24-month average market capitalization as the denominator in financial ratios, the FTSE
Shariah USA Index uses total assets.3 The index universe of the Dow Jones Islamic Market US Index and the FTSE Shariah USA Index
derives from US companies that are part of the Dow Jones Islamic Market Index and FTSE Shariah Global Equity index respectively.

1
https://www.google.com/trends/correlate/.
2
Sharia scholars are reputable religious scholars who set the rules on practices that conform to Islam (Çokgezen and Kuran, 2015).
3
The Dow Jones Islamic Market US Index applies the following financial ratios: debt/market capitalization < 33%; cash and interest-bearing
items/market capitalization < 33%; accounts receivable/market capitalization < 33%. The FTSE Shariah USA Index uses the following financial
ratios: debt/total assets < 33.33%; cash and interest bearing items/total assets < 33.33%; accounts receivable and cash/total assets < 50%.

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I. El Ouadghiri, J. Peillex Journal of Comparative Economics xxx (xxxx) xxx–xxx

Fig. 1. Evolution of GSV index for the term “Islamic Terrorism” in the United States, 2004–2017.
Note: The circles indicate terrorist attacks listed in Panel A of Table 2.
Google Trends.

Fig. 2. Evolution of US media coverage related to Islamic terrorism, 2004–2017.

Note: Circles indicate terrorist attacks listed in Panel A of Table 2.
Factiva.

On March 31, 2017, the Dow Jones US Total Stock Market Index and the Dow Jones Islamic Market US Index consist of 3813 and
1229 US stocks respectively. At the same time, US indices provided by the FTSE had fewer constituents, numbering 620 in the FTSE
USA Index and 233 in the FTSE Shariah USA Index.
Fig. 3 illustrates the evolution of weekly prices for US indices. A visual inspection shows that prices on US indices follow broadly
similar movements. In addition, the subprime crisis of 2008 had a negative effect on all of them.

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Fig. 3. Evolution of weekly prices for US indices.

Table 1 displays the descriptive statistics of returns of US indices. Consistent with the results of Jawadi et al. (2014)
andWalkshäusl and Lobe ;(2012), each family of indices has a slight difference between the Islamic index and the conventional index
in terms of annualized returns, volatility, and Sharpe ratios. However, comparing families, the US indices provided by the FTSE seem
to underperform the Dow Jones US indices. Regarding the volatility measured by the annualized standard deviation, the conventional
indices seem to be slightly more volatile. Moreover, we find that all returns of indices are leptokurtic and are skewed to the left. The
results of the Jarque-Bera test show that the returns distributions are non-normal, some of which is caused by large outliers around
the bursting of the 2008 subprime bubble.

3. Methodology

3.1. The effect of terrorist events on returns on US indices

In order to investigate the impact of terrorist attacks perpetrated “in the name of Islam” on returns of US Islamic and conventional
indices, we employ a DID type of analysis. More specifically, we compare the effect of terrorist events on the returns of US indices one
month after and before the terrorist events when the index is Islamic (treatment group) with those when the US index is conventional

Table 1
Descriptive statistics of returns for US indices, January 2004–August 2017.
Mean S.D. Sharpe Skew. Kurt. Min. Max. J-B

Dow Jones US Index 8.0% 17.3% 0.054 −0.93 12.24 −20% 12% 2.632⁎⁎⁎
Dow Jones Islamic US Index 8.0% 16.4% 0.057 −1.03 12.09 −19% 10% 2.571⁎⁎⁎
FTSE USA Index 6.0% 17.3% 0.038 −0.93 12.17 −20% 12% 2.593⁎⁎⁎
FTSE Shariah USA Index 5.7% 16.0% 0.039 −1.16 14.01 −20% 10% 3.749⁎⁎⁎

Mean refers to the annualized mean of weekly returns. S.D. indicates the annualized standard deviation of the weekly returns. J-B is the Jarque-Bera
test.
⁎⁎⁎
indicates statistical significance at 1% level.

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Table 2
Major terrorist, financial, and political events.
Source: Factiva.
Panel A: Major terrorist events committed “in the name of Islam”

Date City Nature of attack Deaths Injuries

3/11/2004 Madrid Train bombings 192 2050

8/31/2004 Moscow Subway bombing 10 50
7/7/2005 London Multiple bombings 53 700
2/4/2006 Damascus Swedish embassy attack (cartoons of Mohammad) 0 0
9/12/2006 Damascus US embassy attacks 4 13
4/15/2013 Boston Boston Marathon bombings 3 183
9/7–9/2015 Paris Series of five attacks 20 22
11/13/2015 Paris Series of terrorist attacks (Bataclan) 137 368
12/2/2015 San Bernardino San Bernardino attacks 14 22
3/22/2016 Brussels Brussels bombings 35 300
6/13/2016 Orlando Mass shooting at a nightclub 49 53
3/22/2017 London Westminster attacks 5 44
6/3/2017 London Series of terrorist attacks 8 48
8/17/2017 Barcelona Series of terrorist attacks 14 100
Panel B: Major financial events
Date Nature Events
7/20/2007 Crisis Bernanke warned that the subprime crisis could cost up to $100 billion
3/14/2008 Rescue Bear Stearns near collapse
9/15/2008 Crisis Lehman Brothers declares bankruptcy, the largest ever in the US
9/29/2008 Rescue US White House rejects $700 billion financial-rescue plan
8/5/2011 Rating US government credit-rating downgrades
Panel C: Major political events
Date Events
12/13/2004 G.W. Bush reelection
1/20/2009 First election of Barack Obama
1/20/2017 Election of Donald J. Trump

(control group). This allows to control for two types of potentially confounding trends: (1) changes in the returns of US indices
(Islamic and conventional) when a terrorist event occurred and (2) changes in the returns of Islamic indices that would not ne-
cessarily be related to the terrorist attacks. The model is presented as follows:
Ri, t = β0 + β1 POSTt + β2 ISLAMICi, t + β3 POSTt *ISLAMICi, t + β4 RMt + β5 SMBt + β6 HMLt + β7 MOMt
+ β8 Financialt + β9 Politicalt + IndexFamily + Year + ɛt (2)

where the dependent variable is the weekly return of the index i in week t. In this vector, we include the weekly returns of the four US
indices (the Dow Jones Islamic Market US Index, the Dow Jones US Total Stock Market Index, the FTSE Shariah USA Index and the
FTSE USA Index) between 2004 and 2017. POSTt is a dummy variable that takes the value of one during the month after the terrorist
attacks and zero before the terrorist events. These attacks that have affected directly or indirectly Western countries are presented in
Panel A of Table 2. ISLAMICi, t is also a dummy variable coded as one if the US index is Islamic (treatment group) and zero if the US
index is conventional (control group). The interaction variable POSTt*ISLAMICi, t is the variable of interest. Indeed, β3 is the DID
estimator that shows the changes in the returns of US Islamic indices following the terrorist attacks, controlling for confounding
trends. The other variables are control variables. Following Fama and French (1993), RMt denotes the return of the market portfolio
defined by the Center for Research in Security Prices (CRSP) value-weighted index in t. This index takes into account all firms
incorporated in the US and listed on the NYSE, AMEX, or NASDAQ. SMBt is the difference in returns between a small capitalization
portfolio and a large capitalization portfolio in week t, while HMLt is the difference in returns between a high and a low book-to-
market portfolio in week t. The fourth factor, MOMt, refers to momentum. It denotes the difference in returns between portfolios of
stocks with high and low returns over the previous 52 weeks. All these risk factors were collected from the Kenneth R. French data
library.4 Because financial events primarily related to the subprime crisis are expected to affect returns (El Ouadghiri and
Uctum, 2016) of both Islamic and conventional US indices, we include the dummy variable Financialt which is composed of financial
events presented in Panel B of Table 2. Finally, in the political events vector Politicalt, we include the US presidential elections for all
elected presidents who took strong positions on the “war on terror” upon taking office. We assume that their inaugural addresses
presented in Panel C of Table 2 had a strong impact on US public attention to terrorist attacks. Moreover, by amplifying the un-
certainty, US presidential elections are likely to affect returns of US indices. These two vectors take a value of one over the week of
the political or financial event and zero otherwise. The dummy variable IndexFamily equals one if the US financial index is provided
by Dow Jones and zero if the index belongs to the FTSE indices family. The calendar effects are taken into account by including year

4
http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/index.html.

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dummies denoted Year. These variables take a value of one when t belongs to a year y (y = 2004, …, 2017 ) and zero otherwise.
Finally, ɛt denotes the error term.

3.2. The effect of active attention to Islamic terrorism on returns of US indices

We develop a second DID type of analysis to assess the effect of active US public attention on returns of US indices. In this model,
we control for two types of potentially confounding trends: (1) changes in the returns of US indices (Islamic and conventional)
following the active attention scores and (2) changes in the returns of Islamic indices, which is the treatment group. We estimate the
following model:

Ri, t = β0 + β1 ACTIVEt + β2 ISLAMICi, t + β3 ACTIVEt *ISLAMICi, t + β4 RMt + β5 SMBt + β6 HMLt + β7 MOMt

+ β8 Financialt + β9 Politicalt + β10 Terrort + IndexFamily + Year + ɛt (3)

where ACTIVEt denotes active US public attention to Islamic terrorism. This variable is measured by the weekly GSV score in the
United States for the keyword Islamic terrorism. In this specification, the interaction variable ACTIVEt*ISLAMICi, t is the variable of
interest. Indeed, β3 is the DID estimator that shows the effect of GSV on returns of US Islamic indices after mitigating the effects of
extraneous factors. Finally, Terrort is a dummy vector that takes terrorist attacks into account. This dummy takes a value of one if the
attack occurred during a week and zero otherwise. All the other variables have been presented previously.

3.3. The effect of passive attention to Islamic terrorism on returns of US indices

In order to measure the impact of passive US public attention on returns of indices, we estimate, in the same spirit, this third
regression model:

Ri, t = β0 + β1 PASSIVEt + β2 ISLAMICi, t + β3 PASSIVEt *ISLAMICi, t + β4 RMt + β5 SMBt + β6 HMLt + β7 MOMt

+ β8 Financialt + β9 Politicalt + β10 Terrort + IndexFamily + Year + ɛt (4)

where all the variables are the same as those in model (2) except for PASSIVEt, which denotes the media coverage on Islamic
terrorism. This variable is measured by the number of weekly newspaper articles related to Islamic terrorism published in the United
States between 2004 and 2017. The DID estimator of the interaction variable PASSIVEt*ISLAMICi, t measures the effect of media
coverage on returns of Islamic indices.

4. Results

The results of the panel data regressions performed in a DID framework are presented in Table 3. Model 1 aims to measure the

Table 3
Islamic terrorism and returns of US indices: difference-in-difference type regressions, January 2004-August 2017.
Model 1 Model 2 Model 3 Model 4 Model 5

POSTt*ISLAMICi, t −6.8e-5 (0.03)** −0.0002 (0.09)*

ACTIVEt*ISLAMICi, t −5.1e-6 (0.00)*** −5.1e-6 (0.00)***
PASSIVEt*ISLAMICi, t −9.2e-7 (0.01)**
ACTIVETITt*ISLAMICi, t −2.7e-6 (0.01)**
ACTIVEt*POSTt*ISLAMICi, t −3.56e-5 (0.04)**
ISLAMICi, t 0.0002 (0.02)** 0.0003 (0.02)** 0.0004 (0.00)*** 0.0001 (0.01)** 0.0003 (0.02)**
POSTt 0.0002 (0.00)*** 0.0003 (0.00)***
ACTIVEt −5.6e-6 (0.00)*** −5.5e-6 (0.00)*** −6.6e-6 (0.00)***
PASSIVEt −3.9e-7 (0.00)***
ACTIVETITt 1.2e-5 (0.03)**
Financialt −0.0003 (0.62) −0.0005 (0.22) −0.0006 (0.17) −0.0003 (0.62) −0.0005 (0.23)
Politicalt 1.9e-6 (0.99) 0.0001 (0.37) −0.0001 (0.57) 2.6e-5 (0.85) 2.6e-5 (0.85)
Terrort −0.0002 (0.59) −0.0003 (0.41) −0.0002 (0.61)
RMt 0.0101 (0.00)*** 0.0101 (0.00)*** 0.0101 (0.00)*** 0.0101 (0.00)*** 0.0101 (0.00)***
SMBt −0.0004 (0.00)*** −0.0006 (0.01)** −0.0005 (0.00)*** −0.0004 (0.00)*** −0.0005 (0.01)**
HMLt −0.0007 (0.02)** −0.0011 (0.04)** −0.0011 (0.04)** −0.0007 (0.02)** −0.0011 (0.04)**
MOMt 0.0006 (0.00)*** 0.0007 (0.06)* 0.0008 (0.06)* 0.0006 (0.00)*** 0.0007 (0.06)*
IndexFamily Included Included Included Included Included
Year Included Included Included Included Included
Intercept −0.0007 (0.00)*** −0.0007 (0.00)*** −0.0003 (0.05)* −0.0006 (0.00)*** −0.0009 (0.00)***
Adjusted R2 0.9944 0.9796 0.9795 0.9938 0.9795
N 2848 2848 2848 2848 2848

This table presents the relationship between Islamic terrorism and weekly US indices returns using difference-in-difference type panel data re-
gressions. Standard errors are clustered on index family and year level. ***, **, and * indicate statistical significance at the 1, 5, and 10% level,
respectively.

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effect of terrorist attacks committed “in the name of Islam” on returns of US Islamic indices. The estimated coefficient of the in-
teraction between post and Islamic is negative and significant at the 5% level. This indicates that terrorist events claiming to act in the
name of Islam negatively affect returns of US Islamic indices.
In Models 2 and 3, we investigate the link between US public attention to Islamic terrorism and returns of Islamic indices. While
Model 2 captures the effect of active public attentiveness to this phenomenon, Model 3 measures the impact of passive attention on
returns of Islamic indices. The DID estimators of the interaction variables ACTIVEt*ISLAMICi, t and PASSIVEt*ISLAMICt are negative
and statistically significant at the 1% and 5% level respectively. This clearly shows that returns of US Islamic indices are negatively
related to US public attention to Islamic terrorism, whether active or passive.
The negative relationship between these two phenomena can be explained in several ways. First, it could be the result of per-
sistent amalgams between terrorism and Islamic finance made by a first category of investors, which led them to punish Sharia-
compliant assets by selling them. It might also be caused by a second category of investors, who anticipate the behavior of the first
category of investors and flee the market of Sharia-compliant assets when attention to Islamic terrorism increases. Even if they are
sensitive to Islamic finance, they may prefer to reduce their demand for these financial products to avoid the risk of losses. Second,
because Islamic terrorism may affect relations between Muslim countries and the United States, this result could be also explained by
the idea that demand from Muslim countries for US securities that are Sharia- compliant could decrease when attention paid to
Islamic terrorism is great. Furthermore, after terrorist events, risk aversion by the investors and/or the central banks could change,
and this may influence interest rates and the debt level. Because the companies must pass several debt and interest income ratios to be
included in the Islamic index, this could affect the composition of Islamic indices and thus their returns. In any case, our results
demonstrate that US Islamic indices are susceptible to an Islamic terrorism effect.
In addition to these three models, we consider two other specifications presented in columns 4 and 5. In column 4, we assess the
moderator effect of active attention to Islamic terrorism on the relationship between terrorist attacks and the returns on US Islamic
indices. This model allows us to examine whether the reaction to terrorist attacks that are salient in people's minds, as evidenced by
GSV scores, is the same as it is for other terrorist events. The results show that the coefficient of the interaction variable
ACTIVEt*POSTt*ISLAMICi, t is negative and significant at the 5% level and bigger than the estimator of the interplay variable
POSTt*ISLAMICi, t, which is negative and significant at the 10% level. This suggests that active attention to Islamic terrorism amplifies
the negative link between terrorist attacks and returns on Islamic indices.
In the last column, we compare the impact of active US attention to the keywords “Trump Islamic terrorism” on returns of US
Islamic indices (measured with the interaction variable ACTIVETITt*ISLAMICi, t) with the effect of active attentiveness to the key-
words “Islamic terrorism” (measured, as previously, with the interplay variable ACTIVEt*ISLAMICi, t). The purpose of this model is to
check whether the political interventions of Donald J. Trump amplify the negative effect of Islamic terrorism on returns of Islamic
indices. The coefficient of the interaction variable ACTIVETITt*ISLAMICi, t is negative and significant at the 5% level, but it is less
significant than the estimator of the interaction variable ACTIVEt*ISLAMICi, t which is negative and significant at 1% level. This result
seems to indicate that interventions by Trump do not strengthen the negative relationship between active attention to Islamic
terrorism and returns of Islamic indices.

5. Robustness checks

In our DID framework, we ran pooled panel regressions including the returns of four US indices. Because FTSE indices differ from
Dow Jones indices in terms of performance (cf. Table 1) and Sharia screening criteria, it could be interesting to isolate the financial
effects of the main explanatory variables on each US index. To do this, we perform several time-series regressions using a Student's t
GARCH-in-mean process (Kollias and Papadamou, 2016). We choose a GARCH-in-mean model for two main reasons. First, we
observed the presence of an ARCH effect for all US indices (see Table 4). Second, because in financial theory, risk and expected
returns are correlated, the mean equation of the GARCH model should have a reference to variance. The model is estimated using the
maximum likelihood method, with innovations drawn from a Student's t distribution. The presence of leptokurtosis (see Table 2) and
the result of the Jarque-Bera test suggest that the Student's t distribution is more appropriate than the Gaussian error distribution for
fitting our GARCH model. It is described by the following system of equations:
Ri, t = β0 + β1 ACTIVEt + β2 PASSIVEt + β3 RMt + β4 SMBt + β5 HMLt + β6 MOMt + β7 Financialt + β8 Politicalt
+ β9 Terrort + Year + γ (ht ) + ηt (5)

ht = α 0 + α1 ut2− 1 + α2 ht − 1 (6)

ηt ϕt − 1 ∼ t (ν ) (7)
where the dependent variable is the weekly return of index i in week t. The process specifying the conditional variance ht is a GARCH
(1,1) process, where ht is described as a linear function of the squared values of the past residuals u2t − 1 and the lagged conditional
variance ht − 1. α0, α1 and α2 are the parameters to be estimated. The sum α1 + α2 reflects the degree of volatility persistence, which is
assumed to be less than one. If it is close to one, then shocks to volatility persist over time. The coefficient γ is the trade-off parameter,
which reflects the correlation degree between risk and expected returns of the index. The sign and magnitude of this relationship may
be positive, negative, or zero. Finally, in Eq. (7), we consider that errors follow a Student's t distribution, with ν being the degrees of
freedom. All other variables are the same as those in Eqs. (3) and (4).
The maximum likelihood estimates of this extended four-factor model are presented in Table 4. The results show that active and

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Table 4
Islamic terrorism and returns of US indices: GARCH-in-mean models.

Mean equation: Ri, t = β0 + β1 ACTIVEt + β2 PASSIVEt + β3 RMt + β4 SMBt + β5 HMLt + β6 MOMt + β7 Financialt + β8 Politicalt + β9 Terrort + Year
+ γ (ht ) + ηt

Islamic Indices Conventional Indices

Dow Jones FTSE MSCI Dow Jones FTSE MSCI

Intercept −0.0008 (0.19) −0.0005 (0.37) −0.0028 (0.07)* 0.0001 (0.63) 0.0003 (0.33) 0.0015 (0.51)
RMt 0.0101 (0.00)*** 0.0097 (0.00)*** 0.0096 (0.00)*** 0.0101 (0.00)*** 0.0101 (0.00)*** 0.0101 (0.00)***
SMBt −0.0008 (0.00)*** −0.0011 (0.00)*** −0.0012 (0.00)*** −9.5e-5 (0.00)*** −0.0002 (0.00)*** −0.0013 (0.00)***
HMLt −0.0022 (0.00)*** −0.0015 (0.00)*** −0.0014 (0.00)*** 3.5e-5 (0.16) −1.1e-5 (0.67) −0.0003 (0.00)***
MOMt 0.0011 (0.00)*** 0.0011 (0.00)*** 0.0015 (0.00)*** 0.0003 (0.00)*** 0.0001 (0.08)* −5.5e-5 (0.82)
ACTIVEt −1.1e-5 (0.02)** −1.4e-5 (0.01)** −1.9e-5 (0.00)*** −9.4e-7 (0.48) 4.3e-7 (0.76) −9.6e-7 (0.85)
PASSIVEt −1.3e-6 (0.01)** −2.4e-6 (0.00)*** −1.1e-6 (0.00)*** −1.1e-7 (0.66) −1.9e-7 (0.45) −3.9e-8 (0.95)
Terrort −0.0004 (0.21) −0.0010 (0.21) −0.001 (0.08)* 0.0002 (0.14) 0.0002 (0.20) 0.0005 (0.37)
Financialt 0.0002 (0.91) −0.0023 (0.69) −0.0043 (0.01)** 0.0003 (0.61) 5.9e-5 (0.86) −0.0009 (0.36)
Politicalt 0.0004 (0.21) 6.9e-5 (0.93) 0.0037 (0.54) 8.3e-5 (0.81) −0.0002 (0.63) −2.9e-5 (0.98)
(ht ) 0.1168 (0.04)** 0.2258 (0.00)*** 0.4768 (0.01)** −1.0659 (0.00)*** −1.0109 (0.00)*** −0.7544 (0.01)**

Variance equation: α 0 + α1 ut2− 1 + α2 ht − 1

Intercept 8.4e-6 (0.02)** 6.7e-7 (0.00)*** 2.2e-5 (0.01)** 3.9e-8 (0.00)*** 3.3e-8 (0.00)*** 1.5e-6 (0.05)*
ut2− 1 0.3111 (0.00)*** 0.0581 (0.01)** 0.2326 (0.00)*** 0.0371 (0.01)** 0.0449 (0.00)*** 0.1504 (0.11)
ht − 1 0.4036 (0.00) 0.8823 (0.00)*** 0.5907 (0.00)*** −0.7665 (0.00)*** 0.9055 (0.00)*** 0.6674 (0.00)***
Year Effects Included Included Included Included Included Included
Diagnostics
ARCH test 88*** 11*** 11*** 21*** 130*** 17***
N 712 712 521 712 712 521
Adjusted R2 0.9783 0.9655 0.9533 0.9978 0.9978 0.9909
LogLik 3095 2995 1991 4101 4072 2402
SIC −8.538 −8.192 −7.404 −11.26 −11.18 −8.92

The GARCH-in-mean models were estimated using a maximum likelihood method, with innovations drawn from the Student's t distribution. The
period for Dow Jones and FTSE indices is January 2004-August 2017. The period for MSCI indices is August 2007-August 2017. ***, **, and *
indicate statistical significance at the 1, 5, and 10% level, respectively.

passive attention to Islamic terrorism have a negative and significant effect on returns of the Dow Jones Islamic Market US Index and
the FTSE Shariah USA Index. By contrast, US public attention to Islamic terrorism has no significant impact on the returns of their
conventional US counterparts. In addition, we find that terrorist attacks have no significant impact on the returns of these two indices’
families. However, given the coefficients’ signs, they affect returns on Islamic indices more negatively. So these results corroborate
our main findings on public attention but moderate our results on the impact of terrorist events.
Furthermore, we estimate the same model by using the weekly returns of the MSCI USA Islamic index and the MSCI USA index
between 2007 and 20175 as dependent variables. The financial ratios applied by the Sharia scholars of the MSCI USA Islamic index
are very similar to those used for the FTSE Shariah USA index. The only difference is that MSCI USA Islamic index considers that
companies are not Sharia compliant when the sum of accounts receivable and cash over total assets exceeds 33.33% (50% according
to the FTSE Shariah USA index). The results are presented in the last columns of Table 4. We obtain the same findings overall for the
Dow Jones and FTSE indices families. Indeed, the variables ACTIVEt, PASSIVEt, and Terrort negatively and significantly affect returns
of the MSCI USA Islamic index while they have no significant impact on returns of the MSCI USA index.
The estimates of the variance equation's parameters, α1 and α2, are positive and significantly different from zero. The volatility of
each index's returns is highly persistent because the sum of the estimated ARCH and GARCH parameters (α1 + α2) in each variance
equation is close to one. Also, these parameters respect the requirement that (α1 + α2)<1. This indicates that conditional volatilities
are mean reverting for all indices. In addition, the trade-off parameter (γ) related to the risk term (conditional standard deviation) in
the mean equation is statistically significant for all indices. This confirms the anticipated correlation between risk and expected
return. However, this correlation seems to be positive for the US Islamic indices and negative for their conventional counterparts.
This means that the higher volatility of US Islamic indices (conventional indices) tends to increase (decrease) their expected returns.
This result can be explained by the specific composition of Islamic indices. Indeed, because they are dominated by defensive stocks
and characterized by lower betas, they tend to outperform during periods of financial instability (Peillex and Ureche-Rangau, 2013).

5
The MSCI USA Islamic index was created in 2007.

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I. El Ouadghiri, J. Peillex Journal of Comparative Economics xxx (xxxx) xxx–xxx

6. Conclusion

This paper explores the link between US public attention to Islamic terrorism and returns of Islamic and conventional US indices
between 2004 and 2017. Although active attention is measured using a novel metric provided by Google Trends (GSV), passive
attention to Islamic terrorism is approximated by media coverage. We perform a DID type of analysis and estimate, as robustness
checks, GARCH-in-mean models. Independent of the framework used, our results can be summarized as follows.
First, we find evidence that US public attention to Islamic terrorism, whether active or passive, negatively and significantly affects
the returns of US Islamic indices. Second, we observe that terrorist attacks perpetrated “in the name of Islam” have a more negative
impact on the returns of US Islamic indices than those of conventional US indices. In this context, we also show that terrorist events
that are salient in people's minds affect the returns of Islamic indices more negatively than other terrorist attacks. These results
support the view that investors mentally associate the two “Islamic” phenomena: Islamic terrorism and Islamic finance. Hence, in the
context of an intensification of public attention to Islamic terrorism, they may decide to punish Sharia-compliant assets by selling
them. Another explanation might be anticipation of this type of behavior. In this configuration, even rational investors may decide to
sell Sharia-compliant assets when public attention to this phenomenon is high. The fact that Islamic terrorism has no significant
impact on the returns of conventional US indices suggests that this phenomenon does not imply a general fear that affects all assets,
because of a modification in investor risk aversion.
These findings are useful for investors who are sensitive to Islamic finance and providers of Islamic financial products. For
investors who are sensitive to Islamic finance, we assume that they have financial reasons for fleeing Islamic financial products when
public attention to Islamic terrorism is relatively high. For providers of Islamic financial products and institutions that promote
Islamic finance, our findings suggest that they should make greater efforts to explain the principles of Islamic finance to avoid
possible clichés in this financial industry. When public attention to Islamic terrorism is particularly intense, they could also highlight
the absence of any relationship between Islamic terrorism and Islamic finance. In addition, they might consider finding a name for
their financial products other than “Islamic” to reduce the risk of conflation.
We make two theoretical contributions. First, our study enriches the literature on behavioral finance. Indeed, although previous
studies demonstrate, for instance, the impact on stock returns of sunshine (e.g., Hirshleifer and Shumway, 2003), Ramadan
(Białkowski et al., 2012), and Easter (e.g., Pantzalis and Ucar, 2014), our results demonstrate the potential effect on US Islamic
indices of Islamic terrorism. Second, our paper extends studies on the financial effects of terrorist attacks by showing that investor
attention, measured by GSV as well as by media coverage, has an impact at least as strong as the attacks themselves.
Our study could be developed further in different directions.6 First, in line with Apergis and Apergis (2016) and Graham and
Ramiah (2012), which study the impact of terrorist attacks on specific sectors, one relevant avenue to pursue would be to assess the
impact of public attention to Islamic terrorism on different Islamic and conventional sector indices. Second, it might be interesting to
reproduce the study in countries where a higher proportion of the population is Muslim and where Islamic finance is more highly
developed, such as Indonesia, Malaysia, and Saudi Arabia. In these countries, the lower risk of association between terrorism and
Islamic finance might empirically demonstrate the absence of causality between Islamic terrorism and negative returns on Sharia-
compliant stocks. Third, our paper represents an initial investigation of the effect of public attention to Islamic terrorism on financial
returns. Future work could examine its impact on the volatility of returns. Finally, instead of focusing on the financial effects of
Islamic terrorism on Islamic indices, we could analyze the effects on sukuk.7 This would allow us to examine whether the Islamic
terrorism effect depends on the context of the financial asset promoted by the Islamic finance industry.

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