Stock price reaction to power outages following extreme weather events: Evidence from Texas power outage

TL;DR

This paper investigates how the 2021 Texas winter storm impacted stock prices of local firms, using multiple financial models to measure abnormal returns caused by the disaster.

Contribution

It provides empirical evidence on the stock market's reaction to natural disasters, specifically analyzing the effects of a major winter storm on Texas firms' stock prices.

Findings

Significant abnormal stock returns observed post-storm

Different benchmark models yield consistent results

Quantifies financial impact of natural disasters on local firms

Abstract

In this study, we evaluate the effects of natural disasters on the stock (market) values of firms located in the affected counties. We are able to measure the change in stock prices of the firms affected by the 2021 Texas winter storm. To measure the abnormal return due to the storm, we use four different benchmark models: (1) the market-adjusted model, (2) the market model, (3) the Fama-French three-factor model, and (4) the Fama French plus momentum model. These statistical models in finance characterize the normal risk-return trade-off.