Market implied volatility and natural disasters: international evidence

doi:10.1007/s11356-022-21718-5

. 2022 Dec;29(56):84962-84988.

doi: 10.1007/s11356-022-21718-5. Epub 2022 Jul 5.

Market implied volatility and natural disasters: international evidence

Ping Wei¹, Xiaodan Mao¹, Xiaohong Chen¹, Xiaohang Ren², Yan Cheng³

Affiliations

¹ Business School, Central South University, Changsha, 410083, China.
² Business School, Central South University, Changsha, 410083, China. domrxh@outlook.com.
³ Essex Business School, University of Essex, Colchester, CO4 3SQ, UK.

PMID: 35788486
DOI: 10.1007/s11356-022-21718-5

Market implied volatility and natural disasters: international evidence

Ping Wei et al. Environ Sci Pollut Res Int. 2022 Dec.

. 2022 Dec;29(56):84962-84988.

doi: 10.1007/s11356-022-21718-5. Epub 2022 Jul 5.

Authors

Ping Wei¹, Xiaodan Mao¹, Xiaohong Chen¹, Xiaohang Ren², Yan Cheng³

Affiliations

¹ Business School, Central South University, Changsha, 410083, China.
² Business School, Central South University, Changsha, 410083, China. domrxh@outlook.com.
³ Essex Business School, University of Essex, Colchester, CO4 3SQ, UK.

PMID: 35788486
DOI: 10.1007/s11356-022-21718-5

Abstract

Using daily data, we provide fresh international evidence that an occurrence of natural disaster is accompanied by an increase in the market implied volatility of the main equity index in the same country contemporaneously and in the future. The relation between market implied volatility and natural disaster is a short-run relationship, mainly driven by the subsample of countries with a low frequency of disaster or with developed financial markets. Our analysis shows that in contrast to ex post volatility measures, implied volatility can reflect more climate physical risk information, which provides insight for multinational equity investment in coping with environmental physical risk. Our findings provide insight for multinational equity investment in coping with climate physical risk.

Keywords: Disaster risk; Market implied volatility; Natural disasters.

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References

1. Aslam M, Farvaque E, Malan F (2021) A disaster always rings twice: early life experiences and central bankers' reactions to natural disasters. Kyklos 74:301–320
1. Bali GT, Peng L, Shen Y et al (2014) Liquidity shocks and stock market reactions. Rev Financ Stud 27(5):1434–1485
1. Barro RJ (2006) 2006. Rare disasters and asset markets in the twentieth century. Q J Econ 121(3):823–866
1. Barro RJ (2009) Rare disasters, asset prices, and welfare costs. Am Econ Rev 99(1):243–264
1. Barro RJ, Ursua JF (2008) Consumption disasters in the 20th century. Am Econ Rev 98(2):58–63

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[1] Aslam M, Farvaque E, Malan F (2021) A disaster always rings twice: early life experiences and central bankers' reactions to natural disasters. Kyklos 74:301–320

[2] Aslam M, Farvaque E, Malan F (2021) A disaster always rings twice: early life experiences and central bankers' reactions to natural disasters. Kyklos 74:301–320

[3] Bali GT, Peng L, Shen Y et al (2014) Liquidity shocks and stock market reactions. Rev Financ Stud 27(5):1434–1485

[4] Bali GT, Peng L, Shen Y et al (2014) Liquidity shocks and stock market reactions. Rev Financ Stud 27(5):1434–1485

[5] Barro RJ (2006) 2006. Rare disasters and asset markets in the twentieth century. Q J Econ 121(3):823–866

[6] Barro RJ (2006) 2006. Rare disasters and asset markets in the twentieth century. Q J Econ 121(3):823–866

[7] Barro RJ (2009) Rare disasters, asset prices, and welfare costs. Am Econ Rev 99(1):243–264

[8] Barro RJ (2009) Rare disasters, asset prices, and welfare costs. Am Econ Rev 99(1):243–264

[9] Barro RJ, Ursua JF (2008) Consumption disasters in the 20th century. Am Econ Rev 98(2):58–63

[10] Barro RJ, Ursua JF (2008) Consumption disasters in the 20th century. Am Econ Rev 98(2):58–63

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Market implied volatility and natural disasters: international evidence

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Market implied volatility and natural disasters: international evidence

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