Local Ownership and Price Discovery around Extreme Weather Events

In this event study, we exploit Geographic Information Systems (GIS) to show that local institutional ownership mitigates the negative impact of extreme weather events on stock prices. We determine the exposure of firms to extreme weather events by overlaying the locations of production facilities with affected geographic regions. We complement the data with firms’ financial information, facilities’ and investors’ ownership, and facility level physical risk exposure. For storms, we find a negative cumulative average risk-adjusted abnormal daily return of 99 basis points on the event date. Local institutional ownership (IO) reduces this negative surprise by 3% for every additional percentage point of local ownership. We base our findings on a sample of 353 unique companies, 1,438 facilities, 68 floods, and 16 storms. Our results are statistically and economically significant for investors.