The Great East Japan Earthquake's Impact on the Japanese Financial System

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The Great East Japan Earthquake's impact on the Japanese financial system

Japan is located in an area where several tectonic plates meet. Earthquakes frequently strike the Japanese archipelago - minor tremors occur almost on a daily basis, while severe disasters - infrequently, yet they have had harsh consequences in terms of both direct and indirect impact on the economy, thus, on the financial system. Earthquakes are usually associated with devastation and losses, and Japan is no exception. However, Japan is still the third largest economy in the world measured by Gross Domestic Product (Ro, 2013).
The most disastrous earthquakes of the history in Japan of last 100 years took place in 1923, 1995 and 2011- the Great Kanto,
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Although, assuming that Efficient Market Hypothesis (EMH) holds, the responding stock market indices should reflect the harm caused by the earthquake, because, as EHM states that market prices fully reflect all publicly available information (Fama, 1970). Thus, it means that, if investors are rational and their decisions are not affected by noise traders, one can conclude that the decrease in stocks’ value is explainable by the damage of the catastrophe.
Financial Times reports the performance of global indices - S&P for Americas, FTST Eurofirst 300 for Europe and Nikkei 225 for Asia-Pacific region, plus, the Nikkei 225 is comprised of 225 stocks that are selected from the Japanese common stocks in the first section ranked by trading volume of the Tokyo Stock Exchange (Nikkei indexes, 2014). Therefore, the Nikkei 255 is considered to be a good proxy of the Japanese market capitalization ( Ugbede, Lizam, Kaseri & Idachaba, 2013).
Market capitalization is a way how to determine the value of a company using the stock price, and to presume the likeliness of it’s growth (Amadeo, 2013). Meanwhile the financial system is defined as a network of markets and institutions that bring savers and borrowers together (Hubbard, 2000). Hence, detailed analysis of the Nikkei 225 allows to evaluate the impact of the earthquake on
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