The impact of natural events and disasters on the Australian stock market: a GARCH-M analysis of storms, floods, cyclones, earthquakes and bushfires

This paper examines the impact of natural events and disasters in Australia on Australian stock market returns. The data set employed consists of daily price and accumulation (including dividends and changes in capitalisation) returns from 1 January 1980 to 30 June 2003 and the complete timing and duration of all severe storms, floods, cyclones, earthquakes and bushfires recorded during this period. A GARCH-Mean model is used to model the return series and the natural events and disasters are specified as exogenous explanatory variables. The results indicate that at the market level, natural events and disasters have no significant impact on returns however defined.

[1]  M. Skidmore.  Risk, natural disasters, and household savings in a life cycle model , 2001 .

[2]  M. Skidmore,et al.  DO NATURAL DISASTERS PROMOTE LONG‐RUN GROWTH? , 2002 .

[3]  J. Albala-Bertrand.  Complex Emergencies versus Natural Disasters: An Analytical Comparison of Causes and Effects , 2000 .

[4]  Reinhold P. Lamb.  An Exposure-Based Analysis of Property-Liability Insurer Stock Values around Hurricane Andrew , 1995 .

[5]  Ranga Narayanan,et al.  Catastrophic Shocks in the Property-Liability Insurance Industry: Evidence on Regulatory and Contagion Effects , 1996 .

[6]  N. Gentle,et al.  Economic Costs of Natural Disasters in Australia , 2001 .

[7]  C. R. Sprecher,et al.  Large Losses, Risk Management and Stock Prices , 1983 .

[8]  George Horwich,et al.  Economic Lessons of the Kobe Earthquake , 2000, Economic Development and Cultural Change.

[9]  Lauren M. Bloom,et al.  American Academy of Actuaries , 2006 .

[10]  Richard J. Zeckhauser,et al.  The economics of catastrophes , 1996 .

[11]  P. R. Chandy,et al.  LARGE LOSSES, RISK MANAGEMENT AND STOCK RETURNS IN THE AIRLINE INDUSTRY , 1987 .

[12]  Dwight C. Anderson,et al.  Gaining From Loss: Property-Liability Insurer Stock Values in the Aftermath of the 1989 California Earthquake , 1992 .

[13]  Julie A. B. Cagle.  Natural Disasters, Insurer Stock Prices, and Market Discrimination: The Case of Hurricane Hugo , 1996 .

[14]  Measuring catastrophic events on operating viability of firms: hurricane hugo and hospitals , 1995 .

[15]  R. T. Fox.  Using intervention analysis to assess catastrophic events on business environment , 1996 .

[16]  Asani Sarkar,et al.  Securitizing Property Catastrophe Risk , 1996 .

[17]  Richard Priestley,et al.  The effects of stock index futures trading on stock index volatility: An analysis of the asymmetric response of volatility to news , 1998 .