The Effect of the Size of the Military on Stock Market Performance in the United States and the UK

SUMMARY This paper uses regression analysis to investigate the relationship between military expenditure and stock market performance for the United States and the United Kingdom. Specifically, the study applies the Bierens‐Guo unit root procedures to ascertain the time series properties of the variables in the study. The standard OLS technique is employed to determine the influence of military expenditure on stock markets for the period 1914 through 2001. The results from the unit root tests indicate that the military expenditure, military personnel, stock market, and energy consumption series are level stationary. The results from the OLS equations suggest that military expenditure has significantly positive effect on stock market performance for the United States and the United Kingdom. The implication of this finding is that high‐income class and people in power are less likely to oppose increases in military spending even though such expenditures are not in the best interest of the society.