The Impact of the May 12 Earthquake on Local Stocks in China

B. Yang (PR China)


Earthquake; Market response; Case study; China


This paper examines the impact and duration of the May 12 earthquake on local listed stocks in China by the use of event study method, and identifies several significant factors contributing to the post-disaster performance by stepwise regression. The empirical results indicate that the overall significant impact on local listed companies is positive, which lasts 10 days. During this period, the industry category, which is expected to benefit from the reconstruction after the earthquake, has a significant correlation with the abnormal return of the listed stocks. After the immediate 10-day period, the overall impact starts to phase out, but on the firm’s level the effects still exist, only different in degrees. The inventory turnover ratio can partly explain the difference. Normally firms with high inventory turnover ratio are more reliant on the operation of the supply chain, and are more vulnerable to the adverse circumstances resulting from the earthquake. Anyway, by the 25th day since the earthquake, the market absorbs all the information and the impact of the earthquake has died out.

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