The 2011 Japanese earthquake, tsunami and nuclear crisis

Abstract

Purpose -Natural disasters may inflict significant damage upon international financial markets. The purpose of this study is to investigate if any contagion effect occurred in the immediate aftermath of the Japanese earthquake, tsunami and subsequent nuclear crisis. Design/methodology/approach -Using 33 international stock indices and exchange rates, this paper uses heteroscedasticity biases based on correlation coefficients to examine if any contagion occurred across financial markets after the March 11, 2011 Japanese earthquake, tsunami and nuclear crisis. The sample period is partitioned into two sections: the 12-month pre-earthquake period (March 11, 2010 to March 10, 2011 and the 2-month post-earthquake period (March 11, 2011 to May 10, 2011. While the stability period is defined as the pre-earthquake period, the turbulent (turmoil) period is defined as the post-earthquake period. In a bid to ensure robustness of the findings, the turmoil period is further partitioned into two equal sections: the 1-month (short-term) post-earthquake period (March 11, 2011 to April 10, 2011, and the 2-month (medium-term) post-earthquake (March 11, 2011 to May 10, 2011. Findings -Findings reveal that, while no sampled foreign exchange markets suffered from contagion, stock markets of Taiwan, Bahrain, Saudi Arabia and South Africa witnessed a contagion effect. Practical implications -The results have two paramount implications. First, the paper has confirmed existing consensus that in the face of natural crises that could take an international scale, emerging markets are contagiously affected for the most part. Second, the empirical evidence also suggests that international financial market transmissions not only occur during financial crisis; natural disaster effects should not be undermined. Originality/value -This paper has shown that the correlation structure of international financial markets are also affected by high profile natural disasters.

The Impact of a Recent Natural Disaster on the Japanese Financial Markets: Empirical Evidence

“…The sad truth is that there was a defensive wall along the coast which should have been enough to protect much of the coastal land from the tsunami, however, due to the land displacement the wall sunk by approximately 1 metre. This had the add-on effect of endangering the Fukushima nuclear power station and causing the worst nuclear energy crisis since Chernobyl in 1986, according to Asongu (2012).…”

“…Thus hinting at market participants reacting to the earthquake. In Asongu (2012), there were mixed results in the transmission of volatility in the global FX and equity markets after the Tohoku earthquake. This has two significant factors: the first is that markets react to natural disasters differently depending on their status and sovereign economic relationship.…”

“…This has two significant factors: the first is that markets react to natural disasters differently depending on their status and sovereign economic relationship. However, the key factor raised by Asongu (2012) is that transmission in volatility on the global financial market is not limited to financial or economic crises. Natural disasters can and often do transmits volatility in the global financial market for certain periods.…”

“…There were previous papers and research on the impact of the earthquake on the financial market (Asongu, 2012;Luo, 2012;Ferreira & Karali, 2015). The majority of those are restricted to the equity market.…”

The Impact of the Great East Japan Earthquake on Japan’s Economic Growth

“…Fujiki and Hsiao (2015) measured the effect of the Great Hanshin-Awaji earthquake using annual GRP data. Asongu (2012) examined the presence of the contagion effect across financial markets after the Great East Japan Earthquake using stock indexes and exchange rates. However, to date, no study has focused on the indirect loss caused by the Great East Japan Earthquake.…”