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Climate change and financial stability: Natural disaster impacts on global stock markets

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  • Pagnottoni, Paolo
  • Spelta, Alessandro
  • Flori, Andrea
  • Pammolli, Fabio

Abstract

This paper aims to provide a statistical analysis of the impacts of worldwide climate change and consequent natural disasters on international stock markets. By means of a suited event study methodology, we investigate the effects of biological, climatological, geophysical, hydrological and metereological disasters occurred in 104 countries across the world on 27 global stock market indexes over the period 8 February 2001 to 31 December 2019. We find heterogeneous stock markets responses to natural hazard shocks depending on the type of event under consideration, as well as on the location in which the event has occurred. Climatological and biological calamities seem the disaster types which, overall, induce the most extreme reactions of international financial markets. Furthermore, the analysed stock indexes are more responsive to shocks occurring in European countries. Finally, to predictively validate our model, we build a natural disaster risk hedging strategy, which sheds light on the investment opportunities derived from the mitigation of natural risks.

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  • Pagnottoni, Paolo & Spelta, Alessandro & Flori, Andrea & Pammolli, Fabio, 2022. "Climate change and financial stability: Natural disaster impacts on global stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 599(C).
    • Handle: RePEc:eee:phsmap:v:599:y:2022:i:c:s037843712200365x
    DOI: 10.1016/j.physa.2022.127514
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    More about this item

    Keywords

    Climate change; Finance; Global stock markets; Event study; Financial markets; Natural disasters; Natural risks;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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