An event study analysis of stock market reactions to extreme natural disasters in China

This study examines how six extreme natural disasters, namely strong convection, low temperature, earthquakes, typhoons, droughts, and sandstorms, affect the Chinese stock market, focusing on pre-event, immediate, and sustained effects using event study methods. The results show that investor responses vary by disaster type, with strong convection, low temperature, and typhoon events leading to immediate, and sustained positive market reactions, while sandstorms have a pre-event and immediate negative impact. Heterogeneity analysis based on economic loss and industry reveals that more severe disasters are associated with larger magnitudes of market responses. However, certain industries, such as manufacturing, construction, and power supply, may benefit from increased post-disaster demand. Additionally, the more frequent the disasters, the more proactive the investors’ responses, resulting in a market response significantly different from zero. Since the signing of the Paris Agreement, the market exhibited numerically larger responses to extreme natural disasters such as strong convection, low temperatures, and typhoons. Overall, this study provides valuable insights for offering policy guidance to enhance market stability and resilience to climate-related risks.