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How the Capital Market Reacted to the Great East Japan Earthquake: A Risk Perspective

In: Governance, Risk and Financial Impact of Mega Disasters

Author

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  • Soichiro Moridaira

    (Keio University)

Abstract

This chapter studies how the Japanese stock market reacted to the Great East Japan Earthquake. The Nikkei 225 stock index did not show much declining due to the Earthquake compared with the Great Financial crisis of 2007-2008. However, it can be shown that the impact of the Great Earthquake was bigger than that of the Great Financial crisis from the viewpoint of the default (insolvency) probability which may be computed from the stock prices. We furthermore try to show that the impacts of the Great Earthquake upon the stock prices of electric power and insurance companies using the state-space model. We find that the systematic risk representing by stochastically time-varying betas in these firms drastically changed after the Great Earthquake. The betas of all of the electric power companies depending upon the atomic showed strong jump just after the day of the Fukushima power plant collapse resulting from the Great Earthquake. In contrast to this, the betas of the insurers declined reflecting “gain from the loss (Shelor et al. in J Risk Insur 476–488, 1992).”

Suggested Citation

  • Soichiro Moridaira, 2019. "How the Capital Market Reacted to the Great East Japan Earthquake: A Risk Perspective," Economics, Law, and Institutions in Asia Pacific, in: Akiko Kamesaka & Franz Waldenberger (ed.), Governance, Risk and Financial Impact of Mega Disasters, chapter 0, pages 81-96, Springer.
    • Handle: RePEc:spr:eclchp:978-981-13-9005-0_5
    DOI: 10.1007/978-981-13-9005-0_5
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