Stock markets are highly sensitive to foreign and domestic events. Stock exchange markets react promptly to news and are known as an indicator of good and bad trading conditions. Terrorist attacks leave adverse effects on the economy and cause stock price volatility and, consequently, stock return volatility. Therefore, this research aims to analyze the spatial effects of terrorism on stock market returns in the Middle East from 2008-to 2019. Before estimating the spatial model, the spillover effects were confirmed for the spatial autoregressive model using Moran’s diagnostic test for spatial dependence, Geary’s C test, and Akaike statistic. The results of this study on spatial panel data and based on spatial autoregressive estimator indicated that terrorism and associated neighborhood effects had a negative impact on stock returns in Middle East countries. Also, the corruption index and oil price negatively affected stock market return in these countries, while the democracy index had a positive effect on stock market returns. According to the results, to achieve a high and stable stock market return, it is recommended that high level consultation is pursued with leaders of involved countries in order to reduce the devastating effects of terrorist activities, increase political and economic stability, attract stockholders to stock markets, and spend corresponding incomes developing the infrastructures in this sector in countries of this region.