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The memory of Katrina and the stock market response to hurricane-related news and events

Author

Listed:
  • T. Chatzivasileiadis

    (Institute for Environmental Studies, Vrije Universiteit, Amsterdam)

  • F. Estrada

    (Centro de Ciencias de la Atmosfera, Universidad Nacional Autonoma de Mexico, Ciudad Universitaria, Mexico
    Institute for Environmental Studies, Vrije Universiteit, Amsterdam)

  • M. W. Hofkes

    (Department of Economics, Vrije Universiteit, Amsterdam
    Institute for Environmental Studies, Vrije Universiteit, Amsterdam
    Department of Spatial Economics, Vrije Universiteit, Amsterdam)

  • R. S. J. Tol

    (Institution Department of Economics, University of Sussex
    Institute for Environmental Studies, Vrije Universiteit, Amsterdam
    Department of Spatial Economics, Vrije Universiteit, Amsterdam
    Tinbergen Institute, Amsterdam)

Abstract

This paper examines the relationship between hurricane news coverage and U.S stock market returns focusing on the costliest hurricanes following Katrina (Ike, Irene and Sandy) and Patricia, which was one of the strongest hurricanes on record worldwide. In particular, we investigate the reaction of the market to hurricane news coverage and the way the memory of Katrina affected the investors’ decisions during hurricanes Ike, Irene, Sandy and Patricia. Using an event study methodology, we find that the event of a hurricane generates a significant positive reaction on the stock returns, in the short-term, that fades away over a 20 day period. The empirical evidence shown here suggests that hurricane related news coverage has a negative effect on stock returns for all events excluding hurricane Irene. Moreover, Katrina related news still have a significant effect during each event even 10 years after it took place. The memory of Katrina has a positive correction effect over the initial negative reaction of investors to the hurricane related news-coverage.

Suggested Citation

  • T. Chatzivasileiadis & F. Estrada & M. W. Hofkes & R. S. J. Tol, 2017. "The memory of Katrina and the stock market response to hurricane-related news and events," Working Paper Series 1417, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:1417
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    File URL: http://www.sussex.ac.uk/economics/documents/wps-14-2017.pdf
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