Identify the type of disaster and
describe the effects of the same in brief
Terrorism.
Answers
Answer:
The growing number of negative events worldwide, among them natural disasters, artificial disasters and terrorism, has led the public to focus attention on the impact of such events on the economy and the capital market. This research examines the effects of natural disasters, artificial disasters and terrorism on the stock market in order to reveal profit opportunities. In this research, we collected data on 344 significant events that received media attention and examined the differences between the three types of events using the Pessimism Index. Some of the results include the following: (1) natural disasters cause the greatest damage to the economy, whereas terrorism causes the least damage; (2) natural disasters exhibit the highest level of severity, whereas artificial disasters have the lowest severity. The research reveals some opportunities for investors to obtain arbitrage profits. During natural disasters, the stock index decreases on the day of the events and on the two subsequent days. Therefore, investors should short sell the index on the day of the disaster and hold it for 2 days. On the contrary, during artificial disasters or terrorist incidents, the index drops only on the day of the event and the next day, so investors should short sell the index on the day of the disaster and hold it until the end of the first working day following the incident.
Introduction
The growing number of natural disasters, artificial disasters1 and terrorist incidents around the world has led the public to focus attention on the impact of these events on various economic activities and on the growth of the global economy. These disasters and terrorist incidents, which are usually sudden and unpredictable, have increasingly affected a large portion of the world population over the last decades. Human activity enhances the effect of such events in that, as the population grows and building expands, previously unpopulated areas become more vulnerable.
Natural disasters are powerful natural phenomena that are caused by nature and that sow death and destruction in their wake. These natural events are marked by several criteria:
They are caused by natural forces, but human actions can intensify or expedite them.
The events are very powerful and are measured by specified indices, such as the Richter scale for measuring the magnitude of earthquakes or the Volcanic Explosivity Index for measuring the relative explosiveness of volcanic eruptions.
The events are very sudden, last a short time and are unpredictable (or give very short notice as in the case of a tsunami).
The events cause casualties and major economic damage.
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