We find that different natural disasters have different effects on stock markets and industries. Our evidence suggests that while earthquakes, hurricanes and tornadoes could negatively affect market returns several weeks after the events, other disasters such as floods, tsunamis and volcanic eruptions have limited impact on stock markets.
Do natural disasters affect the stock market?
Our evidence suggests that while earthquakes, hurricanes and tornadoes could negatively affect market returns several weeks after the events, other disasters such as floods, tsunamis and volcanic eruptions have limited impact on stock markets.
Do natural hazards exacerbate the impact of high market turbulences?
Thus, times of high market turbulences appear to exacerbate the impacts of natural hazards on stock returns but this does not alter our finding about the progressive effect of disasters on stock returns that are felt on a two-to-three month period.
How did the stock market react to the Chernobyl disaster?
The stock market had no discernable reaction to this event and doubled over the next two years. The nuclear accident in Chernobyl on April 26, 1986 also had no noteworthy effect on stocks.
Do natural disasters affect volatility?
Table 8 reports the volatility event study results. We observe that, on average, disasters have no significant impact on volatility with slightly negative CAV for most event windows.
How do natural disasters affect the financial sector?
Key Takeaways. Weather data suggest that natural disasters are on the rise, due to increased building in vulnerable areas and climate change. Businesses often suffer direct expenses, such as the cost of renovating damaged property and equipment, as well as indirect expenses from lost revenue.
Do tornadoes affect stock market?
Key Takeaways. Tornadoes result in significant economic losses that can be classified as direct losses or indirect losses. Direct losses are the result of the destruction of assets and the resulting decrease in their value and/or the lost income as a result of destroyed assets.
What is the impact of a disaster on companies?
Loss of Clientele That means specific establishments such as entertainment spots will see a drop in the number of patrons visiting them. Damaged goods are also another consequence of natural disasters for many companies. For example, it happens when fires burn existing stock or floods immerse them in water.
What are the effects of natural disasters?
In a disaster, you face the danger of death or physical injury. You may also lose your home, possessions, and community. Such stressors place you at risk for emotional and physical health problems. Stress reactions after a disaster look very much like the common reactions seen after any type of trauma.
What stocks go up during natural disasters?
Home Improvement Companies The Home Depot (HD), Lowe's (LOW), and Walmart (WMT) are three companies that may see an increase in business in a weather event's aftermath.
What affects the stock market?
Stock prices change everyday by market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up.
How do disasters affect economy?
The economic damage caused by disasters varies. Capital assets and infrastructure such as housing, schools, factories and equipment, roads, dams and bridges are lost. Human capital is depleted due to the loss of life, the loss of skilled workers and the destruction of education infrastructure that disrupts schooling.
Who profits from natural disasters?
In 2017, six companies in the New York Stock Exchange (NYSE) benefited from natural disasters. The list includes American conglomerates, Procter & Gamble, Home Depot and Lowe's.
Are natural disasters good for the economy?
1. Disasters increase scarcity and reduce the output of economies. In simplest terms, inputs are necessary for outputs; fewer inputs means fewer outputs. When a disaster damages or destroys resources – whether labor, capital, or natural resources – total production in the economy must fall.
What are the 3 effects of disaster?
6.1 Short-Term Effects1 Victims, Selective Mortality, and Population Recovery. ... 2 Land Loss and Capital Destruction. ... 3 Economic Crisis. ... 4 Scapegoating, Blame, and Social Unrest.
What are three major effects of natural disasters?
Natural disasters have three general types of effects: primary effects, secondary effects, and tertiary effects.Primary effects are the direct result of the natural disaster, such as collapsed buildings and water damage.Secondary effects are the result of primary effects.More items...•
What are long term effects of natural disasters?
Perhaps the most devastating long-term health consequence of natural disasters is the loss of infrastructure. Roads may be damaged. Bridges and homes can collapse. Hospitals may lose power for extended periods or see entire wings destroyed by fire, flood, or wind.
How much damage did Hurricane Katrina cause?
Property damage caused by the hurricane is estimated to exceed $80 billion. Surprisingly the S&P greeted the hurricane with an eight-day, 3% rally. 38 trading days the S&P was 2.4% lower.
What were the major events that occurred in 2004?
The events below are sorted based on perceived effect on the U.S. economy. 1) Indian Ocean Earthquake - December 26, 2004. This undersea earthquake had its epicenter off the west coast of Sumatra. The earthquake and the resulting tsunamis killed over 230,000 people in 14 countries.
Why is extreme bullishness so troublesome?
Extreme bullishness over prolonged periods of time is troublesome because it turns potential buyers into owners. The only thing a stocks owner can do is sell. Following the 2007 highs - both in terms of price and sentiment reading - the Nikkei declined more than 50% without the 'help' of an earthquake.
Did the Chernobyl disaster affect stocks?
The nuclear accident in Chernobyl on April 26, 1986 also had no noteworthy effect on stocks. Purely based on a historic correlation analysis between (natural) disasters and the stock market, it appears that even catastrophic events do not alter the market's performance.
Highlights
Major natural disasters induce abnormal stock returns and return volatilities.
Abstract
This paper examines the impact of major natural disasters on the stock returns and volatilities of U.S. firms. We find that a small proportion of catastrophes have a significant impact on returns, after controlling for false discoveries.
1. Introduction
An increasing number of studies contend that the frequency and intensity of extreme weather events are rising as a consequence of global warming and climate change (e.g. Francis and Vavrus, 2012, Rahmstorf and Coumou, 2011 ).
2. Data and summary statistics
We rely on the information contained in two distinct disaster databases to identify natural disasters. They are the Federal Emergency Management Agency (FEMA)’s major disasters database and the National Climatic Data Center (NCDC)’s storm events dataset. FEMA's database reports all federally declared disasters since 1953.
3. Event-study methodology
Our event study methodology is inspired from Worthington and Valadkhani (2004) who use an intervention analysis framework and from Worthington (2008) and Wang and Kutan (2013) who employ a generalized autoregressive conditional heteroskedastic (GARCH) model. Intervention analysis is based on an autoregressive moving average (ARMA) model.
4. Empirical results
We begin our empirical exercise by describing the model specification that achieves the best fit in each state and selected individual firm. The coefficients of the retained ARMA-EGARCH specifications for the state portfolios are presented in Table 3.
5. Volatility event-study
In this section, we examine the impact of disasters on the second moments of stock returns. Wang and Kutan (2013) test for disaster-induced volatility on American and Japanese stock markets by adding dummy variables to the conditional variance equation.
Abstract
Hong Kong is located at the Pearl River Delta, which is among the urban areas that are most vulnerable to natural disasters in the world. The research suggests that environmental factors such as climate factors can have significant effects on the performance of stock markets.
2.1. Introduction
After a formal transfer of sovereignty from the United Kingdom to China in 1997, Hong Kong has been a Special Administrative Region with a high level of autonomy. For decades, Hong Kong has been reputed to be a highly developed economy and a world-leading financial center.
2.2. Literature Review
While the body of literature on the effects of natural catastrophes on stock markets is growing, the empirical findings are found to be contradictory.
2.3. ARMAX–EGARCHX Model
As noted earlier, this study aims to examine the dynamic impacts of severe weather events in Hong Kong on the local stock market return and volatility.
2.4. Data
This study used daily data of the Hang Seng Composite Index (HSI) and natural disasters in Hong Kong. The sample period started from January 2, 2008 to September 30, 2019, yielding almost 2900 observations.
2.5. Findings and Discussion
Initially, it is essential to test for the asymmetry in Hong Kong stock market return volatility to avoid model misspecification. Accordingly, Engle and Ng (1993) size and sign bias tests were performed. Table 2.3 reports the asymmetric test statistics for the log return series.
2.6. Conclusion
This study investigated the impacts of natural disasters on stock market return and volatility in Hong Kong over various event windows ranging from 1 day to 2 months following the disaster event. For empirical analysis, a standard ARMA process was extended with an EGARCH process and a dummy variable X indicating the incident of natural disasters.
Why are natural disasters on the rise?
Weather data suggest that natural disasters are on the rise, due in part to climate change and increased building in vulnerable areas. Businesses often suffer direct expenses, such as the cost of renovating damaged property and equipment, as well as indirect expenses from lost revenue.
What are the natural disasters that have affected the lives of local residents?
Expand. Natural disasters—from hurricanes and earthquakes to droughts and floods —have the power not only to upend the lives of local residents, but also to create a substantial expense for governments, businesses, and individual residents. Larger disasters, such as Hurricanes Katrina and Harvey, have left tens of billions ...
How much damage did Texas get in February?
One estimate says that the damage in Texas alone in February is likely to surpass the more than $19 billion in insured losses for the state following Hurricane Harvey. 1 . Those costs are borne most acutely by individual property owners in the area affected.
