Stock Market Will Rally During First Days of War, Says UB Expert on Investor Behavior

BUFFALO, N.Y. -- War likely will boost the stock market during the first days of fighting, as investors express relief that the waiting, wondering and debating are over, according to an expert on investor behavior from the University at Buffalo.

"When the actual war hostilities begin, some of the uncertainty that caused a decline in the market will be resolved and stocks should begin to rally," says Kenneth A. Kim, assistant professor of finance and managerial economics in the UB School of Management.

After this initial boost, the market will swing with news about the war, Kim says.

"If the war goes well and quickly, the market will look forward to upcoming earnings and economic news," he adds. "The rise or fall of the market will depend on those expectations. If the war goes poorly, the market will then turn back down."

Overall, Kim predicts war will have a negative effect on the economy. Americans will stay home where they feel safe, watching the war on TV, and will not be spending in the shopping malls. Government war spending will not stimulate the economy because it will not produce new jobs, and rising oil prices will negatively affect the airline, trucking and tourism industries, Kim says.

Moreover, war will continue to delay corporate-governance reforms needed to boost investor confidence, Kim says.

"When investors return from their focus on war, they again will take a hard look at corporate America," he adds. "The stock market and corporate America have not regained their trust. The longer it takes to restore investor confidence, the harder it will be to do so."