Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334929 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3069
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
In this event study, we analyze the effect of market segmentation on stock returns in Europe amid extreme weather events. We show that local institutional ownership (LIO) mitigates the negative effect of the uncertainty from the occurrence of extreme weather events on stock prices. We assess firms' exposure to physical climate risks using the Eurosystem's method that uses physical climate risk indicators. In a sample with materially exposed industries, we find a negative risk-adjusted abnormal return of 99 basis points for storms on the event date. This negative return is mitigated however by 1.3% for each percentage point increase in LIO. We confirm the mitigating role of LIO by testing the information hypothesis through two channels: the distance between a firm's headquarters and the affected facility and its exposure to physical risk.
Subjects: 
extreme weather events
event study
asset pricing
market segmentation
climate change
financial risk
risk management
financial market
bad weather
report
JEL: 
C81
G11
G14
G32
Q54
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7378-6
Document Type: 
Working Paper

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