as Americans “arm up,” both out of a perceived concern for their safety and fear of tighter restrictions.
The thinking is simple: “I better buy firearms while I still can, before legislation makes it harder for me to do so.” This increased demand would, on its own, spur the market price of gun and ammunition manufacturers by providing an unanticipated financial windfall. But then you have the counter factor: Any talk of tighter rules on gun sales puts at risk the long-term viability of the companies by curtailing future cash flows. The business model of gun-makers, after all, is to sell increasing numbers of firearms to the public. Any ban or restrictions on what types of weapon you can purchase – or even who can buy a firearm – would limit their ability to increase profits.
In the period we looked at, investors seemed to lean into this fear of future legislation more, as seen in the reduced valuation of publicly listed firearm companies after mass shootings.that the mass shootings from 2009 to 2013 resulted in a penalty imposed on firearms stocks over a two-, five- and 10-day window. That is to say, a mass shooting would be followed by a cumulative abnormal drop in share price over that period. The penalty worked out to around 1.25% over a five-day period.
Interestingly, even over the years we looked at, things began to change. The negative stock market response to mass shootings tapered off in the later years of our study, suggesting that the threat of any regulatory measures was not as keenly felt by investors.