Effect of catastrophic disaster in financial market contagion

Siddikee, Md. Noman and Rahman, Mohammad Mafizur (2017) Effect of catastrophic disaster in financial market contagion. Cogent Economics and Finance, 5. pp. 1-13. ISSN 2332-2039

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Abstract

The study examined the contagion effect of financial market volatility from Australian capital market to Indian, New Zealand, Hong Kong, Chinese, Taiwan, and Japanese capital markets due to Australian catastrophe. In the first stage, we employed two-variable vector autoregression (VAR) model for calculating the residuals of the daily index return. In the second stage, we used adjusted correlation coefficient for detecting the significant increase in correlation coefficient of the VAR residuals after the catastrophes. Finally, Fishers r to z transformation was used for identifying contagion. After Victoria bushfire, a significant increase in the adjusted correlation coefficient of Australia with India and Hong Kong and their respective z > +1.96 validates contagion. The adjusted correlation coefficient of Australia with China and Japan increased after the Victoria bushfire but the z < +1.96 with (p > 0.05) does not confirm contagion, but rather exposed the persistence of high economic linkage. Apart from this, a significant decrease in the correlation coefficients with New Zealand is evident with corresponding z < −1.96 and (p < 0.05) advocates low economic linkage among them. After New South Wales (NSW) bushfire, contagion persists only between Australia and Hong Kong and the economic linkage of Australia and Taiwan has notably increased. The negative z score with (p > 0.05) confirms absence of contagion effect in New Zealand, India, and Japan after shocks. The findings of the study recommend the Hong Kong and Indian investors to carefully examine the catastrophe-sensitive industry before taking major investment decisions.

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Item Type:	Article (Commonwealth Reporting Category C)
Refereed:	Yes
Item Status:	Live Archive
Additional Information:	© 2017 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license.
Faculty/School / Institute/Centre:	Historic - Faculty of Business, Education, Law and Arts - School of Commerce (1 Jul 2013 - 17 Jan 2021)
Faculty/School / Institute/Centre:	Historic - Faculty of Business, Education, Law and Arts - School of Commerce (1 Jul 2013 - 17 Jan 2021)
Date Deposited:	03 Mar 2017 00:38
Last Modified:	17 Apr 2018 01:40
Uncontrolled Keywords:	financial market volatility; contagion; environmental catastrophe
Fields of Research (2008):	05 Environmental Sciences > 0502 Environmental Science and Management > 050204 Environmental Impact Assessment 14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objectives (2008):	B Economic Development > 91 Economic Framework > 9199 Other Economic Framework > 919999 Economic Framework not elsewhere classified D Environment > 96 Environment > 9603 Climate and Climate Change > 960307 Effects of Climate Change and Variability on Australia (excl. Social Impacts)
Identification Number or DOI:	https://doi.org/10.1080/23322039.2017.1288772
URI:	http://eprints.usq.edu.au/id/eprint/30734

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