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Nature's impact: Do extreme natural disasters influence retail investors?

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  • Chiah, Mardy
  • Tian, Xiao
  • Zhong, Angel

Abstract

This study investigates the influence of extreme natural disasters on the trading behaviour of retail investors, focusing on two significant events in Australia: Cyclone Debbie in 2017 and the Black Summer bushfires in 2019–2020. Utilising a unique dataset of transaction-level trade data, we examine whether retail investors exhibit a preference for trading stocks with Environmental, Social, and Governance (ESG) ratings during these periods. The findings reveal that retail investors significantly increase their trading activities in ESG-rated stocks (especially high ratings) in the aftermath of these disasters. This behaviour suggests a heightened awareness and preference for ESG performance among retail investors when faced with catastrophic events. In contrast, institutional investors do not show similar trading patterns, indicating a divergence in investment strategies between retail and institutional investors during times of heightened market uncertainty. Despite awareness concerning ESG during natural disasters, we find that ESG stocks heavily purchased by retail investors generate negative returns in the five-day window subsequent to the natural disasters.

Suggested Citation

  • Chiah, Mardy & Tian, Xiao & Zhong, Angel, 2025. "Nature's impact: Do extreme natural disasters influence retail investors?," Journal of Economic Behavior & Organization, Elsevier, vol. 232(C).
    • Handle: RePEc:eee:jeborg:v:232:y:2025:i:c:s0167268125000745
    DOI: 10.1016/j.jebo.2025.106954
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    More about this item

    Keywords

    Natural disaster; Retail trading; ESG;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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