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Do earthquakes shake the stock market? Causal inferences from Turkey’s earthquake

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Listed:
  • Khalid Khan

    (Hengxing University)

  • Javier Cifuentes-Faura

    (University of Murcia)

  • Muhammad Shahbaz

    (Beijing Institute of Technology
    University of Cambridge)

Abstract

This study’s main purpose is to use Bayesian structural time-series models to investigate the causal effect of an earthquake on the Borsa Istanbul Stock Index. The results reveal a significant negative impact on stock market value during the post-treatment period. The results indicate rapid divergence from counterfactual predictions, and the actual stock index is lower than would have been expected in the absence of an earthquake. The curve of the actual stock value and the counterfactual prediction after the earthquake suggest a reconvening pattern in the stock market when the stock market resumes its activities. The cumulative impact effect shows a negative effect in relative terms, as evidenced by the decrease in the BIST-100 index of − 30%. These results have significant implications for investors and policymakers, emphasizing the need to prepare for natural disasters to minimize their adverse effects on stock market valuations.

Suggested Citation

  • Khalid Khan & Javier Cifuentes-Faura & Muhammad Shahbaz, 2024. "Do earthquakes shake the stock market? Causal inferences from Turkey’s earthquake," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-19, December.
    • Handle: RePEc:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-024-00664-w
    DOI: 10.1186/s40854-024-00664-w
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    More about this item

    Keywords

    Stock market; Earthquake; Causal inference; Bayesian structural time-series; Counterfactual predicting;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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