The Comovement and Volatility Effect of Major Natural Disasters on Asian Stock Markets
Date Issued
2012
Date
2012
Author(s)
Wu, Zong-Han
Abstract
This study discusses about natural disasters. We focus on the effects when a disastrous earthquake occurs in one country, it will cause a big shock on the securities market of others country. In order to examine the effect, we include the Pacific coast of Tohoku Earthquake, the Great Sichuan Earthquake and the 2004 Indonesia Tsunami as sample. The stock indexes are chosen from the twelve countries or regions, and the econometric methods are used for examination.
Empirical findings show that the cointegration relation existed during the whole sample periods and this implies a long-term equilibrium. The Granger Causality test shows the comovement among the stock indexes are time-varying and lack consistency. The impulse response functions imply that little efficiency during the periods, and exist arbitrage opportunities for investors. Furthermore, The Variance Decomposition Test demonstrates that the Pacific coast of Tohoku Earthquake has the most serious influence to Asian stock markets, followed by the Great Sichuan Earthquake and the 2004 Indonesia Tsunami. It may depend on countries’ economic capacity or the damage level in industrial areas. Finally, the low volatility during the three events’ periods is proved by the GARCH model. In conclusion, investors can purchase stocks in their portfolio across countries to diversifying their risk, and this also works when disasters occur.
Subjects
comovement
volatility
Granger Causality
impulse response function
Variance Decomposition
GARCH model
SDGs
Type
thesis
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