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Short-term Impacts of the 2004 Indian Ocean Tsunami on Stock Markets: A DCC-GARCH Analysis [extrait BMI 145]

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This paper examines the impacts of the 2004 Indian Ocean Tsunami on the stock markets of four affected countries namely India, Indonesia, Malaysia and Thailand. More specifically, we investigate the existence of contagion effects of the tsunami between these markets. In order to capture potential contagion effects, we use a dynamic-conditional-correlation-multivariate GARCH model developed by Engle and Sheppard (2001), Engle (2002) and Tse and Tsui (2002). Tsunami impacts are modelled using dummy variables. Natural disasters often cause sharp declines in stock markets followed by recoveries that are almost as intense. Despite the significant devastation and massive loss of life, the Asian markets remained relatively calm and even increased during the week following the tsunami: there were no contagion effects between the indices in the post-tsunami period.JEL classification: C58; G01; G15.Keywords: Contagion; Dynamic correlation; DCC-GARCH; Stock market return; Volatility.

Auteurs :Le Saout Erwan , Ganneval Sébastien
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