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Market anomalies and disaster risk: Evidence from extreme weather events

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  • Lanfear, Matthew G.
  • Lioui, Abraham
  • Siebert, Mark G.

Abstract

We document strong abnormal effects due to U.S. landfall hurricanes over the period 1990 to 2017 on stock returns and illiquidity across portfolios of stocks sorted by market equity (ME), book-to-market equity ratio (BE/ME), momentum, return-on-equity (ROE), and investment-to-assets (I/A). ROE- and I/A-related long/short factors are insensitive to hurricanes, while size-, BE/ME-, and momentum-related factors are extremely sensitive to these extreme weather events. Long and short legs react differently and high momentum stocks experience a negative impact on their returns an order of magnitude greater than other stocks. Abnormal illiquidity is only able to account for a small fraction of the observed abnormal returns.

Suggested Citation

  • Lanfear, Matthew G. & Lioui, Abraham & Siebert, Mark G., 2019. "Market anomalies and disaster risk: Evidence from extreme weather events," Journal of Financial Markets, Elsevier, vol. 46(C).
    • Handle: RePEc:eee:finmar:v:46:y:2019:i:c:s1386418118300776
    DOI: 10.1016/j.finmar.2018.10.003
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    More about this item

    Keywords

    Anomalies; Event study; Extreme weather events; Hurricanes; Illiquidity; Rare disasters; Tail risk;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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