Local institutional ownership and price discovery around extreme weather events

Dirk Broeders, Rob Bauer and Flavio De Carolis

No 3069, Working Paper Series from European Central Bank

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. JEL Classification: C81, G11, G14, G32, Q54

Keywords: asset pricing; event study; extreme weather events; market segmentation (search for similar items in EconPapers)
Date: 2025-07
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253069

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