The impact of extreme weather events on the S&P 500 return index

Abstract

ABSTRACT This study examines the relationship between extreme weather conditions and the S&P500 return index, representing the U.S. stock market. The literature review and analysis show extreme weather events can impact the S&P500 return index. This effect is observed in two ways. First, extreme weather events create a market anomaly in the U.S. stock market, indicating that prices move in a way that cannot be explained by a rational model. Second, extreme weather events create financial uncertainty and have a negative impact on firms’ future cash flows. These findings suggest that investors and financial markets should be more cautious about extreme weather events. In addition, the impact of extreme weather on the U.S. stock market is weak. This can be explained in two ways. First, extreme weather events are predictable and seasonally recurring. Second, the American stock market is close to the efficient market hypothesis.