The Impact of the 2019 Australian Bushfire: Financial Markets, Air Pollution, and Economic Effects

Minhua Yang (), Florian Gerth, Vikash Ramiah () and Glenn W. Muschert
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Minhua Yang: Shanghai Maritime University, Shanghai, China
Florian Gerth: Asian Institute of Management, Manila, Philippines
Vikash Ramiah: University of Wollongong in Dubai, Dubai, United Arab Emirates
Glenn W. Muschert: Khalifa University of Science and Technology, Abu Dhabi, United Arab Emirates

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2023, vol. 26, issue 03, 1-21

Abstract: Our study investigates the consequences of the 2019 Australian bushfire regarding its financial, economic, and environmental effects. Using an augmented version of the event study methodology, we show that depressed investors’ mood leads to a countrywide financial impact, which tends to be long-lasting. On the other hand, regional effects are self-correcting, bringing financial valuations back to their fundamental values. We observe that polluting firms experience an increase in their stock market returns during bushfire seasons– consistent with the theory of increased risk premiums in times of uncertainty. Regarding economic activity, we confirm that the countrywide tourism sector, which employs a significant fraction of Australia’s labor force, continues to be severely impaired by regional fires. Unlike previous studies in finance, we demonstrate that bushfires have a substantial and harmful impact on Australia’s air quality. The battery of robustness tests (range of event windows, controlling for information leakage, and changing macroeconomic conditions) validates our findings.

Keywords: Bushfires; Australia; economic and financial consequences; investors’ mood (search for similar items in EconPapers)
JEL-codes: G10 L83 Q56 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S0219091523500200

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