Shaking the markets: the lingering impact of earthquakes and tsunamis on global stock market performance

Purpose This study aims to examine the relationship between earthquakes, tsunamis and global stock market performance. The authors hypothesise that these natural disasters adversely affect nearby stock markets, which spatially diffuse to distant markets, which continually impact their performance over time. Design/methodology/approach The analysis uses weekly index returns and volatility data from January 2005 to December 2024 for the world’s 24 largest stock exchanges. A spatial generalised autoregressive conditional heteroskedasticity model is estimated to capture both temporal and cross-market spillovers on stock market performance. Spatial variables are also created for earthquakes and tsunamis, accounting for both magnitude and the distance from each financial centre to the epicentre. Findings The findings support the hypothesis that earthquakes exert an immediate and lasting adverse impact on stock market returns, which propagates to other markets. In contrast, tsunamis improve stock market performance initially by raising stock returns and lowering stock volatility. These positive effects dissipate over several weeks, worsening stock market performance. Practical implications Policy recommendations suggest that governments should strengthen cross-border cooperation and information sharing, as well as enhance stock market transparency, to help restore and strengthen investor confidence. These policies help mitigate contagion. Originality/value This study advances the disaster economics literature by developing a novel measure that incorporates both magnitude and distance of natural disasters to each financial centre. By accounting for spatial interdependence, this study finds that earthquakes have an immediate and lasting impact on stock market performance on panel data, while tsunamis first improve and subsequently worsen stock market performance.