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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Minhua Yang & Florian Gerth & Vikash Ramiah & Glenn W. Muschert, 2023. "The Impact of the 2019 Australian Bushfire: Financial Markets, Air Pollution, and Economic Effects," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 26(03), pages 1-21, September.
    • Handle: RePEc:wsi:rpbfmp:v:26:y:2023:i:03:n:s0219091523500200
    DOI: 10.1142/S0219091523500200
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    Cited by:

    1. Lyu, Xiaoyi & Hu, Hao, 2024. "The dynamic impact of monetary policy on stock market liquidity," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 388-405.

    More about this item

    Keywords

    Bushfires; Australia; economic and financial consequences; investors’ mood;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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