Natural Disasters

In order to measure the effects of natural disasters (floods and Earthquakes) on KSE 100 index,
banking sector and insurance companies 31 days event window is taken i.e. (-15,0,+15). In
Figure 1 zero is taken as event day. Before the event day market AARs are showing slight
fluctuations and just for the event day there is greater negative trend seen in AARs of KSE 100
index that is immediately covered by the market. As in the post event days AARs are showing
normal trend as before the event day. Hence natural disasters do not have significant impact on
market average abnormal returns. The critical region for T-statistics is -1.96 to 1.96 and the event
value of t-statistics does not fall in the rejection area which shows that the disasters do not have
significant effect on markets AARs.

CAARs are calculated for the event window for 45 events and trend is shown in the following
graph. The trend before the event day is showing little bit fluctuation but for the event day it is
seen a sudden fall in the CAARs from 3.529 to 3.330 for the event day and the day next to the
event. Hence the natural disasters have significant effect on CAARs. The null hypothesis that
natural disasters do not effect the market returns will be rejected for |t
/2
| t
0.05,45
. Calculated t-
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
-15-14-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Market AARs
statistics is greater than the table value that is fall in the rejection area. Thus natural disasters
have significant effect on market CAARs.

As in the prior event days mostly bank AARs are negative while on the event day there isnt seen
any significant change in the bank returns. As graph is showing almost same pattern for prior,
post and event day. Therefore natural disasters do not have significant impact on banks average
abnormal returns. The T-statistics calculated for banks AARs is -1.55 which do not lie in the
rejection area which shows that the disaster do not have significant effect on Bankss AARs.

Figure 4 shows the graph of bank CAARs which are calculated for the same event window for
45 events. Before the event days, bank CAARs are initially has decreasing trend but few days
prior to the event day bank CAARs shows an increase and on the event day a sudden fall in
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
-15-14-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Market CAARs
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
-15-14-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Bank AARs
CAARs is observed that is from -1.792 to -2.05 which decreases for the next few days that shows
a significant effect of natural disasters on bank CAARs.
The trend before the event day is showing little bit fluctuation but for the event day it is seen a
sudden fall in the CAARs from 3.529 to 3.330 for the event day and the day next to the event.
Hence the natural disasters have significant effect on CAARs. Calculated t-statistics is greater
than the table value that is |-3.20 > 1.96 so the null hypothesis natural disasters do not effect the
bank returns will be rejected.


There is almost same type of fluctuation or trend in the insurance AARs prior and after the event
day in the selected event window. Event do not have any significant effect on insurance returns.
T-statistics shows that natural disaster do not have any significant effect on insurance AARs as t
calculated is not falling in the rejection area.
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
-15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Bank CAARs

Insurance CAARs graph is negatively sloped with slight fluctuations before the event day. From
event day to the post event days the insurance CAARs decreased with larger slope which shows
significant effect of natural disasters on insurance CAARs on event days and prior event days
insurance CAARs. The calculated absolute value of t-statistics falls in the rejection region that is
|-2.58|>1.96 for the null hypothesis. So the null hypothesis that natural disasters do not affect the
insurance return will be rejected i.e natural disasters have significant effect on insurance
CAARs



-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
-15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Insurance AARs
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
-15-14-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Insurance CAARs
The natural disasters do not have significant effect on market, bank and Insurance AARs while
have significant effect on market, bank and insurance CAARs


Terrorism Events





-0.05
0
0.05
0.1
0.15
0.2
0.25
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Market AARs
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Market CAARs


-0.3
-0.25
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Bank AARs
-1.8
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Bank CAARs


-0.25
-0.2
-0.15
-0.1
-0.05
0
0.05
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Insurance AARs
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Insurance CAARs

-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Market AARs
Market CAARs
Bank AARs
Bank CAARs
Insurance AARs
Insurance CAARs