Mar

20

The attached plots log(nikkei225). The dark line is from a year before to a year after the 1/17/95 Kobe earthquake (arrow). The red line is log Nikkei from a year ago to +5 days after the 3/11/2011 earthquake (arrow).

The 1995 event - which occurred in a market that was flat to slightly declining - was followed by a modest decline over 4 days, then a small rally, followed by a decline which deepened over the next 6 months.

The recent quake occurred with Nikkei substantially lower than in '95, and followed a flattish period which was rising (with all other markets) over the past 6 months. So far the 2011 tragedy has taken the form of a deep 2-day drop followed by a 3-day bounce.

In terms of contextual backdrop, arguably there are more differences than similarities: Earthquake size/damage/future ramifications, recent global financial crisis, etc.

Craig Mee writes:

Thanks, Kim.

Of note the SP in 1995 was up 18.8% in the following 6 months to 17/8/95.

A spread trade short Nikkei, against one of the more stable Indexes at the moment, (potentially one least effected over the last weeks volatility), maybe a consideration as of 3/20/11.

The Russell 2000 index of smaller companies has lost 1 percent since the earthquake in Japan, a slide that is less than half of the pullbacks of large company indexes like the Dow or S&P 500. That's a surprise, considering that the smaller, riskier companies tend to fall the most during stock downturns. Last year, for instance, the Russell index lost 2 percentage points more than the S&P 500 during a market drop that lasted from April to June.


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