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

Worthington, Andrew C. & Valadkhani, Abbas (2004) Measuring the impact of natural disasters on capital markets: An empirical application using intervention analysis. Applied Economics, 36(19), pp. 2177-2186.

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Abstract

This paper examines the impact of natural disasters on the Australian equity market. The data set employed consists of daily price and accumulation returns over the period 31 December 1982 to 1 January 2002 for the All Ordinaries Index (AOI) and a record of forty-two severe storms, floods, cyclones, earthquakes and bushfires (wildfires) during this period with an insured loss in excess of AUD5 mil. and/or total loss in excess of AUD100 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 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.

Impact and interest:

16 citations in Scopus
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8 citations in Web of Science®

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ID Code: 2324
Item Type: Journal Article
Keywords: Natural events, disasters and catastrophes, market returns, intervention analysis, ARMA
DOI: 10.1080/0003684042000282489
ISSN: 1466-4283
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200) > Finance (150201)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300) > Time-Series Analysis (140305)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Applied Economics not elsewhere classified (140299)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2004 Taylor & Francis
Copyright Statement: First published in Applied Economics 36(19):pp. 2177-2186.
Deposited On: 28 Oct 2005
Last Modified: 05 Jan 2011 23:25

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