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Maitiú Donohoe

November 15th, 2024

The Troubles and the Irish Stock Market

0 comments | 1 shares

Estimated reading time: 10 minutes

Maitiú Donohoe

November 15th, 2024

The Troubles and the Irish Stock Market

0 comments | 1 shares

Estimated reading time: 10 minutes

The Troubles, thirty years of sectarian conflict in Northern Ireland and beyond, might be expected to demonstrate the detrimental impact of political disputes and terrorism on regional financial markets. Maitiú Donohoe’s analysis of asset price behaviour on the Irish Stock Exchange in this period offers a different picture: the surprising resilience of Ireland’s financial markets to episodes of violent unrest.

The Troubles, spanning 1968 to 1998, were marked by violent clashes between Republican and Unionist paramilitary groups. The conflict spread across both the United Kingdom and the Republic of Ireland, resulting in over 3,600 deaths and more than 40,000 injuries, the majority of which involved civilians. Despite the tragic human toll, I find that the Irish Stock Exchange did not experience large negative fluctuations in reaction to violence and unrest.

Even the Omagh Bombing, which threatened to destabilise the Good Friday Agreement in its earliest days, did not precipitate a loss of confidence in asset prices. Instead, my results suggest that the market was driven mainly by major international economic events.

 

(Dis)connecting the Troubles and the Irish Stock Exchange

My analysis focused on equity listings on the Irish Stock Exchange from the beginning of the Troubles in 1968 through to the signing of the Good Friday Agreement in 1998. I used data from two indices to measure stock market performance. The Stock Exchange Index, published by Ireland’s Central Statistics Office, covered the years from 1968 to 1982, and the ISEQ All Shares Index, published by the Irish Stock Exchange, covered the years 1983 to 1998.

I employed two quantitative approaches. The first was an event study, which examines the impact of key events on index prices. Selecting the events for analysis involved a degree of subjectivity. To mitigate bias, I chose events that met a threshold number of casualties or received significant media coverage. High-profile events such as Bloody Sunday, the Omagh bombing, and the signing of the Good Friday Agreement were included, along with some other less famous events.

Recognizing the potential for selection bias in event studies, I used a second approach that examined periods of significant price volatility. By focusing on periods of price volatility, this alternative method allowed the data to reveal the key dates affecting market behaviour. I used contemporary media sources, such as The Irish Timesbrett and The Financial Times, to pinpoint the events driving the price volatility.

 

Did the Irish Stock Market react?

Overall, the results showed that major fluctuations in the Irish Stock Exchange were largely unrelated to significant developments in the Troubles, with one notable exception. Following the signing of the Good Friday Agreement on 10 April 1998, the Irish Stock Exchange saw significant positive returns. This pivotal moment, which marked the end of the Troubles after over 700 days of negotiations between the Irish and British governments, was embraced by investors. The agreement allowed Northern Irish citizens to identify as Irish or British and sought to address socio-economic disparities.

In contrast, the Omagh bombing on 15 August 1998, which killed 29 people and injured 220, did not significantly impact stock returns. Despite the bombing’s horrific nature and its occurrence just months after the Good Friday Agreement, investors seemed to believe the attack would not derail the peace process, maintaining their long-term outlook. Additionally, since the bombing took place on a Saturday, the market had absorbed the news by the time trading resumed on Monday, avoiding any immediate volatility. Like most key events of the Troubles, the Omagh bombing had a limited effect on the Irish Stock Exchange.

The largest single-day percentage changes in the index stemmed from major international events such as the collapse of the Bretton Woods system, stock market panics and crashes, the Gulf War, the devaluation of the pound, and the East Asian financial crisis. The 1987 stock market crash had the greatest influence, accounting for seven of the ten largest negative daily price fluctuations. Positive fluctuations were similarly tied to rebounds from this crash.

Industry-specific developments also played a significant role, particularly in the Irish oil and banking sectors. The Irish Stock Exchange was dominated by a few large companies, with the ten largest firms accounting for nearly 73% of market capitalization in 1995. The indifference of financial markets to the Troubles may be explained by the fact that these companies were largely unaffected by the conflict.

 

Conclusion

The Troubles were a tumultuous period that wreaked havoc across both the United Kingdom and the Republic of Ireland. However, despite the brutality of the conflict over three decades, the Irish stock market remained largely unaffected, with one exception, the period following the signing of the Good Friday Agreement. That saw significant positive returns, suggesting that investors held optimistic views of Ireland’s economic prospects following the agreement.

About the author

Headshot of Matiu Donohoe, a young white man wearing glasses

Maitiú Donohoe

Maitiú Donohoe is a 2023 graduate of the MSc in Financial History programme at LSE. He is currently working at the Irish Department of Finance.

Posted In: Conflict | Financial markets