Working Paper Series

Flight to Gold: Extreme Weather Events and Stock Returns

Using an event study approach at the stock level, we examine the effect of North Atlantic hurricanes on U.S. stocks. We document a substantial economic impact of hurricanes on the aggregate market: ...

Author(s) :

Matthew G. Lanfear

Mark G. Siebert

Abstract :

Using an event study approach at the stock level, we examine the effect of North Atlantic hurricanes on U.S. stocks. We document a substantial economic impact of hurricanes on the aggregate market: an accumulated loss of 0.522% (6.264% annualized) to 30 days post-landfall. For Industry Portfolios encompassing the entire U.S. stock market, we document several patterns. Many manufacturingbased and consumer-focused Industry Portfolios exhibit consistently negative abnormal returns over the event window from formation of the hurricane to 30 days post-landfall. One industry in particular reacts differently, namely Gold. Goldrelated stocks experience substantial positive abnormal returns during these extreme weather events, which suggests that this commodity acts as an endogenous safe asset during the market disruption caused by such meteorological phenomenon. We also show that degradation in liquidity of Gold stocks is of the same magnitude as other industries, ruling-out a flight to liquidity.

Keywords: Event studies, extreme weather events, gold, hurricanes, market efficiency, safe assets.

Link SSRN

Working Paper - Flight to Gold Extreme Weather Events and Stock Returns - Lanfea...
(-1.00 B)
Date : 20/07/2017
Working Paper Number: WP-17-001

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