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Earthquakes in Chile-Peru and the price of copper

Tapia, Pablo and Pastén, Boris and Sepulveda Velasquez, Jorge (2022): Earthquakes in Chile-Peru and the price of copper.

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Abstract

Chile and Peru produce 40% of the world’s copper. In parallel, they are both seismic countries, affecting copper stocks and therefore prices. Global warming will increase the demand for copper as well as the number of earthquakes, making it necessary to investigate the relationship between these phenomena. Our estimates show that earthquakes in Chile and Peru generate positive cumulative abnormal returns greater than 2%, but geographical earthquake coverage and the level of available copper inventory also play a role. In the event of an earthquake, actions are taken both in the financial market and in the physical copper market, which generates positive abnormal returns. The interaction between both can increase the short-term price volatility caused by the uncertainty of the effects of the earthquake. Investors can take actions to mitigate this volatility by controlling related news on days 1 and 2 of the event.

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