Does it Pay to Be Nice?.x000d.Stock Market Reactions to Political Coercion and Force.

The conflict literature offers two major explanations for the correlation between economic integration and peace. The inefficiency argument claims that economic integration deters states from going to war by increasing their economic losses. By contrast, the costly signaling argument asserts that economic integration helps political leaders avoid war by enhancing their ability to communicate with each other through actions short of force. We apply these two arguments to the price reactions of cross-listed stocks to crisis signaling and political force in their home markets: while the inefficiency argument suggests that stock markets should respond negatively only to the use of force, the costly signaling argument suggests that stock markets may also react to lower gauge events such as threats and ultimatums. Our findings, which are based on daily share price movements and King and Lowe’s (2003) events data for the time-period between 2000 and 2004, offer support for the inefficiency argument. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]