Do markets react to weather? Stock price reactions to weather alerts

• Investors negatively react to the announcement of weather alerts. • The negative market reaction is more pronounced for red alerts and alerts involving multiple weather phenomena. • Firms in weather-sensitive industries, and firms listed on the junior stock market experience greater declines. • Regular alert updates partially offset the negative market reaction. This paper examines the impact of weather alerts on stock prices. Using an event-study methodology, we show that the market responds negatively to weather alerts. This reaction is more pronounced when alerts indicate severe impact or involve multiple weather phenomena. Furthermore, firms operating in weather-sensitive industries as well as smaller, high-risk and high-growth firms listed on the junior growth market, experience significantly more negative stock returns. However, frequent updates about the alerts mitigate the negative market impact. Overall, the findings suggest that investors incorporate weather alerts into asset pricing, highlighting the importance of providing regular information during extreme weather events.