Reaction Paper
Alissa L. Munez
Dr. Trinidad
MBA- Colegio de San Juan de Letran
Portfolio Management
Reaction Paper
Natural Disasters and the Philippine Stock Exchange Index: A Garch-M Analysis by Adrian P. Gallido, Ph.D. and Martites A. Khanser, D.B.A
This study examines the effect of earthquakes, tropical cyclones and volcanic eruptions on the Philippine Stock Exchange index (PSEi) over the period of 2 January 1985 to 30 December 2010. In the context of the Philippine Market, the composite index can be seen to support the “gaining from loss” hypothesis of Shelor et al. (1990), where it was implied that stock prices are positively influenced by disasters. The losses derived from disasters contribute to gains in some business sector. For instance, the 1989 California earthquake can be viewed as unfavorable to real estate firms (Property index) but, in contrast, beneficial on the stock price of insurance firms. The negative response of the stock prices on real estate firms was regarded as indication of the unfavorable location of the properties. In contrast, the positive market response on the stock price of insurance firms was considered likely due to investor expectations of higher demand for property-liability insurance-related products.
I’ve also learned that there are criteria of events to be considered a disaster, According to Emergency Events Database (EM-DAT), an event is considered a disaster when it meets at least one of the ff. criteria: i) 10 or more people are killed; ii) 100 or more people are affected; iii) a state of emergency is declared; iv) a call for international assistance was made.
A good point on this study that I’ve also learned is that the future work can also consider other events including technological disasters as well as disasters of human origin such as terrorism (man-made disaster).
In my own opinion, since investors sell shares at the slightest hint of anything that might impact stocks negatively, and that pushes the stock market down. The
Dr. Trinidad
MBA- Colegio de San Juan de Letran
Portfolio Management
Reaction Paper
Natural Disasters and the Philippine Stock Exchange Index: A Garch-M Analysis by Adrian P. Gallido, Ph.D. and Martites A. Khanser, D.B.A
This study examines the effect of earthquakes, tropical cyclones and volcanic eruptions on the Philippine Stock Exchange index (PSEi) over the period of 2 January 1985 to 30 December 2010. In the context of the Philippine Market, the composite index can be seen to support the “gaining from loss” hypothesis of Shelor et al. (1990), where it was implied that stock prices are positively influenced by disasters. The losses derived from disasters contribute to gains in some business sector. For instance, the 1989 California earthquake can be viewed as unfavorable to real estate firms (Property index) but, in contrast, beneficial on the stock price of insurance firms. The negative response of the stock prices on real estate firms was regarded as indication of the unfavorable location of the properties. In contrast, the positive market response on the stock price of insurance firms was considered likely due to investor expectations of higher demand for property-liability insurance-related products.
I’ve also learned that there are criteria of events to be considered a disaster, According to Emergency Events Database (EM-DAT), an event is considered a disaster when it meets at least one of the ff. criteria: i) 10 or more people are killed; ii) 100 or more people are affected; iii) a state of emergency is declared; iv) a call for international assistance was made.
A good point on this study that I’ve also learned is that the future work can also consider other events including technological disasters as well as disasters of human origin such as terrorism (man-made disaster).
In my own opinion, since investors sell shares at the slightest hint of anything that might impact stocks negatively, and that pushes the stock market down. The