Analysis of Resilience in US Stock Markets during Natural Disasters

Abstract

Different studies relating to resilience have been performed on stock markets for disasters around the world. Researchers have tried to figure out if stock markets were resilient or not during a particular disaster. In this piece of work we have compared stock markets during different major disasters in the history of United States. We have created different metrics such as vulnerability, recoverability and reactivityto base performance of stock markets during times of various disasters. The data that has been used was obtained in the form of daily closing prices of Property and Casualty Sector and Overall Sector New York Stock Exchange prices. We compute the daily volatility of each stock and then calculate the overall weighted volatility of the sector using market capitalization of each company operating in the sector. A time series is generated using the difference between the overall market volatility and sector volatility. Breakout Detection is used to find out points of breakout. We have utilized these breakout points to calculate key metrics of resilience. Disasters are ranked according to the stock market performance and an overall resilience ranking is established. We were able to find that all the disasters included in the study had an impact but stock markets demonstrated different level of resiliency. Relative resiliency for these disasters was calculated. Another interesting finding was obtained by using path mapping of the hurricanes studied. Although we were able to get an idea about the relationship between locations of hurricane entry, further studies with more number of disasters need to be performed before we reach conclusive results.