The Impact of Natural Disaster Shocks on Business Confidence Level and Istanbul Stock Exchange: A Wavelet Coherence Approach

The focus of this study is to examine the short- and long-term causal effects of natural disaster shocks on the stock market and business confidence level in the time-frequency domain by studying the co-movements between earthquake data and the Istanbul Stock Index closing prices, using the Wavelet Coherence and Phase Difference analyses. The empirical findings reveal that the relationship between earthquake events and financial markets is not stable over time and across different time horizons. The linkage becomes stronger in the long term when the impact of the earthquake event coincides with a financial crisis reflecting a combined effect. This nexus is also strong during the years 2007–2011 reflecting a similar combined effect of both an earthquake event and the global financial crisis. Meanwhile, co-movement between the earthquake and the financial market index implies a negative effect in the period 2011–2012, indicating short-run effects of stock market shocks. Differentiating these short-term and long-term effects has implications for risk management and policymaking.