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.
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Notes
Source: http://news.xinhuanet.com/english2010/world/2011-04/25/c_13845359.html.
Baklavaci et al. (2011), Chen et al. (2010) and Janabi et al. (2010) employ similar types of GARCH models.
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Acknowledgements
An earlier version of this paper was presented at the 2012 ACES-JACES-SSEM Pacific Rim Conference in Hawaii. Part of this paper was completed when Kutan was on sabbatical and a visiting scholar at the Center for Innovation and Competition-based Development Studies, Boğaziçi University. Kutan also acknowledges the support by a TUBITAK (The Scientific and Technological Research Council of Turkey) program. The authors would like to thank Joe Brada (the Editor) for his very useful comments and suggestions that greatly improved both the exposition and quality of the paper. The usual disclaimer applies.
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Wang, L., Kutan, A. The Impact of Natural Disasters on Stock Markets: Evidence from Japan and the US. Comp Econ Stud 55, 672–686 (2013). https://doi.org/10.1057/ces.2013.16
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DOI: https://doi.org/10.1057/ces.2013.16