THE COMPARATIVE ANALYSIS OF INVESTOR SENTIMENT EFFECT ON TWO MAJOR EARTHQUAKES AND TSUNAMI INCIDENTS

Year 2019, Volume: 10 Issue: 1, 12 - 16, 30.12.2019

Oktay Tas Mine Ceren Sen

Abstract

Purpose- Natural catastrophes such as earthquakes and tsunamis have been a great concern since the beginning of humanity and even before. Apart from the severe property damage they cause, these unforeseen incidents leave thousands of injured and dead. Events like the Indian Ocean and Japan earthquakes and tsunamis even lead to substantial impacts over the global economies. Through this interest, this study aims to determine the impacts of both incidents, over several stock market indices.
Methodology- In order to capture the influence of these events on various stock markets, an investor sentiment methodology is adopted. Trading volume is selected as an investor sentiment proxy and it is regressed against multiple macroeconomic data. The residuals of these analyses are assigned as investor sentiment indices for both cases respectively.Furthermore, an EGARCH model is developed to observe the impacts of investor sentiment associated with both incidents, on the considered stock markets.
Findings- The stock returns of Japan and Vietnam are negatively influenced by investor sentiment associated with the Indian Ocean Earthquake and Tsunami while the stock returns of Indonesia, South Korea, China and Singapore are positively influenced. Thus, the conditional volatilities of Sri Lanka, Indonesia, Thailand, Taiwan and Vietnam are negatively affected. Moreover, the stock returns of Indonesia, South Korea and Thailand are impacted negatively by investor sentiment related to the Japan Earthquake and Tsunami. Hence, the conditional volatility of Indonesia is positively influenced while it is negatively affected for Vietnam.
Conclusion- In contrast with the previous studies, there is strong evidence that most of the selected stock market indices are influenced by both events while the shocks brought by these events are long-lived through the selected stock markets. Moreover, Indian Ocean Earthquake and Tsunami incident seems to generate higher investor sentiment effects on the stock markets than Japan Earthquake and Tsunami incident does.Consequently, Indonesia and Vietnam are considered to be highly impacted by the investor sentiment related to both events. However, Hong Kong, Malaysia and India do not happen to have any investor sentiment effects regarding both earthquakes and tsunami incidents.

Keywords

Investor sentiment, 2004 Indian Ocean earthquake and tsunami, 2011 Japan earthquake and tsunami, EGARCH

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