Pricing Poseidon: Extreme Weather Uncertainty and Firm Return Dynamics

• 成果类型: Article
• 署名作者: Kruttli, Mathias s.; Tran, Brigitte roth; Watugala, Sumudu w.
• 署名单位: Indiana University System; Indiana University Bloomington; IU Kelley School of Business; Federal Reserve System - USA; Federal Reserve Bank - San Francisco
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13416
• 发表日期: 2025
• 页码: 783-832
• 关键词: expected stock returns; political uncertainty; cross-section; RISK; volatility; variance; MARKET; segmentation; equilibrium; disaster

摘要

We empirically analyze firm-level uncertainty generated from extreme weather events, guided by a theoretical framework. Stock options of firms with establishments in a hurricane's (forecast) landfall region exhibit large implied volatility increases, reflecting significant uncertainty (before) after impact. Volatility risk premium dynamics reveal that investors underestimate such uncertainty. This underreaction diminishes for hurricanes after Sandy, a salient event that struck the U.S. financial center. Despite constituting idiosyncratic shocks, hurricanes affect hit firms' expected stock returns. Textual analysis of calls between firm management, analysts, and investors reveals that discussions about hurricane impacts remain elevated throughout the long-lasting high-uncertainty period after landfall.