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The purpose of this paper is to apply safety‐first portfolio principles in an environment where financial risk exists because of the probability of terrorist attacks, where the catastrophic events of September 11, 2001 (911) are the focal point of the analysis.

Safety‐first portfolios of US equities bilaterally combined with 12 developed and emerging region global equity indices are obtained for 911. Extreme value theory and safety‐first principles are used to optimize these portfolios for US risk‐averse investors. The actual performances of all portfolios in the post‐911 period are compared to the optimal results. The robustness of the results is examined by replicating the analysis for the period following July 7, 2006, when no actual terrorist attacks occurred on US soil.

Optimal ex ante (ex post) safety‐first portfolios on 911 have high (low) US weights, and on July 7, 2006 low US weights. The differences are attributed to changes in market projections and/or conditions. In all cases, wealth is preserved even without the ex post optimal portfolios.

Safety‐first portfolio optimization can protect wealth given financial risks of extreme events like terrorist attacks.

The paper shows that quantitative assessments of financial risk are feasible, even though uncertainty with experts' risk assessments of extreme events such as 911 exists because of limited historical data and low probability of occurrence. The results are useful to investors developing international diversification strategies to protect wealth given the risks of terrorist attacks.

The purpose of this paper is to examine the volatility effects on the returns for six developed market indices factoring in the unprecedented event of September 11, 2001, hereafter referred to as 9/11, in the USA. It also looks at the correlations between the indices and the risk premium when uncertainty in the financial markets affects the investors psyche, eroding confidence as volatility increases.

The volatility of the indices in generalized autoregressive conditional heteroskedasticity (GARCH) framework, employing first the Box and Jenkins ARMA (p, q) to select models is investigated. The chosen models are based on the results obtained from Akaike information criterion and Schwartz Bayesian criterion. GARCH is a mechanism that includes past variances in the explanation of future variances.

The results highlight several findings, the variance of developed market returns appears to have increased after the 9/11 event; the correlation has increased among developed markets following 9/11; 9/11 affects developed markets, holding short‐term assets do not provide the investors with the reward they usually seek, but results are mixed in the case of holding long‐term assets; for all the period including sub‐period, signs of significant volatility clustering are found; but shocks are not explosive throughout.

The effect of 9/11 on the markets is different from previous worldwide crashes, such as that of October 19, 1987. This paper will be of value to policy makers and managers/institutional investors and those who have some stakes in international portfolio diversification, as the objective of diversification, is to avail the opportunity to improve portfolio performance on the low correlations across international stock markets.

This paper explores the major factors influencing multinational companies’ (MNCs) propensity to change the level of resource commitments during financial crises in emerging markets. Favorable changes in the host government policies, market demand, firm strategy, and infrastructural conditions are hypothesized to influence the MNCs’ decision to increase resource commitments during a crisis. The hypotheses are tested with data collected in a survey of 82 MNCs during the recent Argentine financial crisis (late 2002). While all the above variables are considered by the respondents as generally important reasons for increasing resource commitments during a crisis, only favorable changes in government policies significantly influence MNCs’ decisions to change the level of resource commitments during the Argentine financial crisis. The research, managerial implications, and policy‐making implications are discussed.