Armageddon and the stock market: US, Canadian and Mexican market responses to the 1962 Cuban missile crisis

Abstract

The threat of nuclear annihilation has never been higher than in 1962, when US President Kennedy and Soviet Premier Khruschev engaged in brinkmanship over the placement of Soviet missiles in Cuba during October 16-28. Although the resolution of the crisis was followed by a sustained recovery in the US, Canadian and Mexican stock markets, the stock market impact of the crisis itself, at first glance, seems relatively limited. Notwithstanding the fact that empirical analysis of 1962 US market data reveal a significant break on October 23, 1962, which is the day after President Kennedy's television address about the Cuban missile crisis, the drop on this day was smaller than prior one day declines seen in the earlier part of the year. When we focus on the 1% left tail of the distribution, that is, just the very largest negative returns, a different story emerges, however. US uncertainty is now seen to have a significant negative impact on returns across each of the US, Canadian and Mexican markets. Moreover, the size of the negative response to the rise in uncertainty is comparable in all three cases notwithstanding the fact the pre-crisis Mexican stock market trajectory had been very different from that seen in the United States and Canada. Show more