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The Impact of Natural Disasters on Stock Markets: Evidence from Japan and the US

Author

Listed:
  • Lin Wang

    () (C.T. Bauer College of Business, University of Houston, Houston, USA.)

  • Ali M Kutan

    () (Southern Illinois University Edwardsville, University Drive, Edwardsville, IL 62025, USA; Borsa Istanbul, Istanbul, Turkey.)

Abstract

This paper investigates the impact of natural disasters on the insurance sector as well as on the composite stock market in Japan and the US. GARCH models are employed to capture both wealth and risk effects of natural disasters. There are no wealth effects in the US and Japan composite stock markets, indicating that these markets can well diversify away the impact of natural disasters on stock return, but there are significant wealth effects in the US and Japan insurance sectors. While US investors in the insurance sector lose, those in Japan gain. All markets except the composite stock market in Japan face risk effects of natural disasters.

Suggested Citation

  • Lin Wang & Ali M Kutan, 2013. "The Impact of Natural Disasters on Stock Markets: Evidence from Japan and the US," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 55(4), pages 672-686, December.
  • Handle: RePEc:pal:compes:v:55:y:2013:i:4:p:672-686
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    Citations

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    Cited by:

    1. Andreas A. Jobst & Nobuyasu Sugimoto & Timo Broszeit, 2014. "Macroprudential Solvency Stress Testing of the Insurance Sector," IMF Working Papers 14/133, International Monetary Fund.
    2. repec:eee:riibaf:v:41:y:2017:i:c:p:556-576 is not listed on IDEAS
    3. Bourdeau-Brien, Michael & Kryzanowski, Lawrence, 2017. "The impact of natural disasters on the stock returns and volatilities of local firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 259-270.
    4. repec:taf:oaefxx:v:5:y:2017:i:1:p:1288772 is not listed on IDEAS
    5. Hood, Matthew & Kamesaka, Akiko & Nofsinger, John & Tamura, Teruyuki, 2013. "Investor response to a natural disaster: Evidence from Japan's 2011 earthquake," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 240-252.

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