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Continuous violent conflict is a central cause of economic stagnation in many of the world's poorest countries. Peace agreements are one common tool used to attempt to break these 'Conflict traps.' However, these agreements often fail due to the lack of a clear and credible commitment by the parties involved in the contract. The authors contend that long-term financial asset values will reflect the credibility of the participants to peace agreements because the expectation of sustained peace will result in higher long-term asset prices. They utilize equity index prices from Sri Lanka to test their theory.
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