Measuring the impact of natural disasters on capital markets: An empirical application using intervention analysis
AbstractThis paper examines the impact of natural disasters on the Australian equity market. The data set employed consists of daily price and accumulation returns over the period 31 December 1982 to 1 January 2002 for the All Ordinaries Index (AOI) and a record of forty-two severe storms, floods, cyclones, earthquakes and bushfires (wildfires) during this period with an insured loss in excess of AUD5 mil. and/or total loss in excess of AUD100 mil. Autoregressive moving average (ARMA) models are used to model the returns and the inclusion of news arrival in the form of the natural disasters is specified using intervention analysis. The results indicate bushfires, cyclones and earthquakes have a major effect on market returns, unlike severe storms and floods. The net effects can be positive and/or negative with most effects being felt on the day of the event and with some adjustment in the days that follow.
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Bibliographic InfoPaper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 154.
Date of creation: 20 Sep 2003
Date of revision:
Natural events; disasters and catastrophes; market returns; intervention analysis; ARMA;
Other versions of this item:
- Andrew Worthington & Abbas Valadkhani, 2004. "Measuring the impact of natural disasters on capital markets: an empirical application using intervention analysis," Applied Economics, Taylor and Francis Journals, vol. 36(19), pages 2177-2186.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
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