The Impact of Natural Disasters on Stock Markets: Evidence from Japan and the US

Lin Wang () and Ali Kutan
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Lin Wang: C.T. Bauer College of Business, University of Houston, Houston, USA.

Comparative Economic Studies, 2013, vol. 55, issue 4, 672-686

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.

Date: 2013
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