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

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Governance, Risk and Financial Impact of Mega Disasters

Part of the book series: Economics, Law, and Institutions in Asia Pacific ((ELIAP))

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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).”

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  1. 1.

    The probability of insolvency (asset value falling below the liability value) of a company after one year can be calculated from the listed company’s stock price and its debt value. Details on the calculation and estimation of probability insolvency are explained by Moridaira (2009, 2011).

  2. 2.

    To be precise, the rate of return on both sides of Formula (1) uses the excess return defined as that with subtracted risk-free rate. Therefore, the constant term α should be zero in a world where a market equilibrium exists, in short where CAPM holds true.

  3. 3.

    For an introductory explanation of the Kalman Filter, refer to Commandeur and Koopman (2007).

  4. 4.

    For a more detailed analysis, refer to Moridaira (2014).

  5. 5.

    Although the Great East Japan Earthquake occurred at 2:45 pm on March 11, 2011, real estate shares on the TSE showed a considerable increase in the 15 min until the end of trade at 3 oʼclock. Real estate share rates increased by 2% on that day.


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Correspondence to Soichiro Moridaira .

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Moridaira, S. (2019). How the Capital Market Reacted to the Great East Japan Earthquake: A Risk Perspective. In: Kamesaka, A., Waldenberger, F. (eds) Governance, Risk and Financial Impact of Mega Disasters. Economics, Law, and Institutions in Asia Pacific. Springer, Singapore.

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  • Publisher Name: Springer, Singapore

  • Print ISBN: 978-981-13-9004-3

  • Online ISBN: 978-981-13-9005-0

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