With the recent destruction in Japan from the massive 8.8 magnitude earthquake and
subsequent tsunami, many are wondering what the effects on the stock market will be.
There can be no doubt about the destructive power of this underwater quake:
Waves reaching 13 feet tall crashed into the coast ripping apart buildings and
washing away cars in a spectacle that made some Hollywood disaster films look tame.
But the question is: What effect will this have on the stock market? Should investors abandon existing strategies and convert to cash? Is it time to "run for the hills"?
A natural starting point to address this question is previous tsunamis. If we can see a noticeable shift in the stock market after a tsunami has struck, then we can have a realistic basis upon which to claim that this kind of natural disaster has an effect (presumably negative) on the market.
To this end I looked at a number of previous tsunamis and correlated their dates with the venerable Dow Jones Industrial averages to see if I could find any effect.
Here are the tsunamis I used for the study:
April 1, 1946 - The "April Fools" tsunami which followed from a massive earthquake in Alaska which killed 159 people largely in the Hawaiian islands.
November 4, 1952 - Kamchatka Tsunami. A magnitude 8.2 earthquake off the coast of Kamchatka Peninsula produced a giant tsunami which struck the Kuril Islands among other areas along the coast of the Far East. The wave was so large it produced considerable damage as far away as Chile and Peru.
July 9, 1958 - The massive tsunami caused by an 8.3 magnitude quake in Lituya Bay, Alaska. One of the largest recorded in the last 100 years, though loss of life was fortunately minimal: Two fishermen were killed when their boat capsized and sunk.
March 9, 1957 - A huge tsunami caused by a quake south of the Andreanof Islands in Alaska. Propagated to the Hawaiian islands where waves reached a height of 45 feet.
May 22, 1960 - A massive quake off the coast of Chile generated a tsunami that quickly slammed into the Chilean coast with devastating force. An estimated 1,500 people in Chile and Hawaii were killed.
March 27, 1964 - The so-called "Good Friday" quake produced a gargantuan 201 foot tsunami in the Valdez Inlet ultimately killing more than 120 people.
Aug. 23, 1976 - A southwest Philippines tsunami which claimed 8,000.
September 1, 17, 1992 - Quake off the shore of Nicaragua registering magnitude 7.0 created a tsunami which ultimately killed approximately 200 people.
July 17, 1998 - a tsunami in Papua New Guinea spawned from a magnitude 7.1 quake claimed 2,200.
Dec. 26, 2004 - A titanic earthquake with a magnitude between 9.1 and 9.3 rattled Indonesia and killed an estimated 230,000 people. One of the most destructive natural disasters in modern history.
So given the tremendous destructive power of these tsunamis, it seems reasonable that they would have a considerable effect on the market. Certainly that is what we are led to believe by the media.
