Raining Money: An Empirical Analysis of the Impact of Severe Weather on Stock Market Performance

Abstract

     There are many conditions that can affect a public company’s stock price. One of these conditions that has a more debated impact is climate and natural disasters. Previous literature on this topic suggests that extreme-weather events mostly negatively impact company share prices, with hurricanes and earthquakes being focal points of research. Additionally, previous literature suggests that companies exposed to a disaster have lower stock market valuations and a higher price crash risk, with effects on the S&P 500 being minimal. This project applies an event study with a 60-day time frame (30 days before and 30 days after) by researching the prices of 100 public stocks across four different types of disasters. The results of this study revealed that hurricanes have the most positive effect, wildfires have the most negative effect, and earthquakes have the most ambiguous impact. Further results also revealed that stock price dips are mainly temporary, and insurance companies were the most diverse impacted industry. Reasons for these results are likely the result of how a company was affected by a disaster, whether it was disruptions in the supply chain, an increase in product demand, etc., and how much warning is given for the disaster. The results of this project mostly aligned with those in the previous literature, and when they did not, it was likely due to differences in project design and collected data. Overall results indicated that the majority of the time, disasters have a negative effect on stock prices.