Measuring the impact of natural disasters on capital markets: An empirical application using intervention analysis

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Worthington, A
Valadkhani, A
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2004
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The impact of natural disasters on the Australian equity market is examined. The data set employed consists of daily price and accumulation returns over the period 31 December 1982-1 January 2002 for the All Ordinaries Index (AOI) and a record of 42 severe storms, floods, cyclones, earthquakes and bushfires (wildfires) during this period with an insured loss in excess of A$5 mil. and/or total loss in excess of A$100 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 that 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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Applied Economics
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36
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19
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© 2004 Taylor & Francis (Routledge). This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on 02 Feb 2007, available online: https://www.tandfonline.com/doi/10.1080/0003684042000282489
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Applied economics
Econometrics
Banking, finance and investment
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