Advances in Economics, Management and Political Sciences
- The Open Access Proceedings Series for Conferences
Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
Series Vol. 63 , 28 December 2023
Open
Access | Article
The Impact of Natural Disaster on US Stock Market Index: Using DID, ARMAX-GARCH, and Random Forest
* Author to whom correspondence should be addressed.
Abstract
The stock market might be impacted by natural disasters, which can cause significant market disruptions and financial uncertainty, as already shown in several existing studies. This study investigates the role of natural disasters in stock market movements in the US specifically, hypothesizing that incorporating natural disasters leads to more accurate stock market predictions. Various models, including Difference-in-Differences (DID), ARMA-GARCH/ARMAX-GARCH, and Random Forest, are employed to analyze the S&P 500 index's daily returns and the impact of natural disasters. The study reveals that the ARMA-GARCH model effectively captures market volatility but does not account for all influencing factors such as interest rate, inflation rate, and natural disasters. The DID method isolates natural disaster effects, showing significant but inconsistent impacts. The Random Forest model, incorporating a disaster severity index, yields more accurate predictions than the one without, reinforcing the hypothesis and supporting previous studies. Although the study highlights the importance of considering natural disasters in stock market predictions, it also underscores the market's complexity, indicating that more features and factors should be considered in future research.
Keywords
Difference-in-Differences, stock return, return volatility clustering, random forest
References
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Data Availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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- Volume Title
- Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
- ISBN (Print)
- 978-1-83558-227-5
- ISBN (Online)
- 978-1-83558-228-2
- Published Date
- 28 December 2023
- Series
- Advances in Economics, Management and Political Sciences
- ISSN (Print)
- 2754-1169
- ISSN (Online)
- 2754-1177
- DOI
- 10.54254/2754-1169/63/20231387
- Copyright
- 28 December 2023
- Open Access
- This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited