An Analysis of the Effects of Seismic Events on The Turkish Stock Market
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2020
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Abstract
Purpose – This study aims to elaborate on the mechanisms of interaction between seismic eventsand the Turkish stock markets.Design/methodology/approach – To model this relationship, the properties of earthquakes has beenmodeled using Mw and ML parameters. Earthquakes’ distance to the surface and the distance to theclosest city center are also added as independent variables. Dataset consists of 7333 observations ofdaily frequency between 01.01.2000 – 28.01.2020 covering longer than a 20-year period. The index ofBIST TUM is used to represent the response of the Turkish stock market. Preliminary analysis on thedataset suggested a threshold effect and therefore, the threshold VAR model has been used to modelthe series.Findings – Findings validate the existence of a significant threshold effect at 4.3 magnitude, whichpoints out to the conclusion that earthquakes below a certain magnitude do not have a significantrelationship with the stock markets in Turkey. Additionally, as seismic events occur closer to thesurface, their negative effects on the market seem to amplify. This effect is also observed as seismicevents get closer to city centers. Additionally, non-damaging seismic events seem to causesubstantial market responses.Discussion – The effects of nondestructive earthquakes along with the effects of aftershocksfollowing a destructive earthquake indicate that the financial consequences of earthquakes in Turkeyare likely to be more related to the perception of risk, rather than the actual destructiveness of theearthquake. Findings also indicate that the aftershocks following a big earthquake hasten therecovery of the BIST TUM index.