Nat Hazards (2015) 77:1979–1992

DOI 10.1007/s11069-015-1687-9

ORIGINAL PAPER

Effects of climatic events on the Chinese stock market:

applying event analysis

Guangxi Cao1 • Wei Xu2 • Yu Guo2

Received: 11 August 2014 / Accepted: 5 March 2015 / Published online: 11 March 2015
Ó Springer Science+Business Media Dordrecht 2015

Abstract Unexpected events occur and influence both enterprises and investors. Based on
event analysis, this study investigates the effects of unexpected climatic events that have
occurred in the country and abroad on the Chinese stock market. The sample includes 21 indices
according to industry from the Shenzhen Stock Exchange in China. The effects of climatic
events that occurred in China and the USA on the Chinese stock market are compared. Results
show that meteorological disasters (i.e., the snow storm in 2008 and strong tropical storm in
2011 in China, as well as the hurricane in 2005 and the snow storm in 2006 in the USA) have
significant effects on the Chinese stock market. Moreover, the influences of these disasters on
the Chinese stock market are different. The unexpected domestic climatic events have a greater
effect on the volatility of the Chinese stock market than those that occurred in the USA. The
same climatic event can have different effects on various industries, whereas different climatic
events can have different effects on the same industry in China. Moreover, the manner in which
these events influence industries may change in the future. We find that the magnitude of the
effect on each industry depends on the sensitivity of the industries to the unexpected climatic
events. Finally, several reasonable recommendations are proposed.

Keywords Climatic events  Event analysis  Stock market volatility  Disaster

& Guangxi Cao

caoguangxi@nuist.edu.cn
Wei Xu
xiaowei66050702@gmail.com
Yu Guo
gy@nuist.edu.cn
1
Collaborative Innovation Center on Forecast and Evaluation of Meteorological Disasters, School of
Economics and Management, Nanjing University of Information Science and Technology, Ningliu
Road 219, 210044 Nanjing, People’s Republic of China
2
School of Economics and Management, Nanjing University of Information Science and
Technology, Ningliu Road 219, 210044 Nanjing, People’s Republic of China

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1 Introduction

China has experienced numerous emergencies, such as the snow storm in the southern
areas and the Wenchuan earthquake in 2008. Measures should be taken in advance re-
gardless of whether an emergency has an effect on economic development and social
stability. As an important component of financial markets, the Chinese stock market may
spread risks caused by emergencies to financial and economic markets through various
channels. Therefore, studying the effects of unexpected events on the stock market is
important.
A considerable number of studies have emphasized the short- and long-term effects of
emergencies on a particular industry or on stock price changes. These studies have mainly
focused on the influences of terrorist attacks (Arin et al. 2008; Drakos 2010; Kollias et al.
2011; Ramiah and Graham 2013; Carter and Simkins 2004; Charles and Darné 2006;
Nikkinen et al. 2008; Brounen and Derwall 2010), nuclear accidents (Kawashima and
Takeda 2012), and aviation accidents (Kaplanski and Levy 2010).
However, only a few studies have focused on the effects of climatic disasters on the
Chinese stock market. Autoregressive–moving-average (ARMA) models are used to ex-
amine the effects of natural disasters on the Australian equity market and found that unlike
severe storms and floods, bushfires, cyclones, and earthquakes significantly affect market
returns (Worthington and Valadkhani 2004). However, ARMA models only apply to a
stationary time series, and thus, it cannot be used directly for a seasonal time series. When
a government issues a warning for a natural disaster (e.g., earthquakes and hurricanes) in a
particular area, the prices of real estate in that area will be negatively affected (Murdoch
et al. 1993; Hallstrom and Smith 2005). Heteroscedasticity biases based on correlation
coefficients are used to investigate whether a contagion effect has occurred in the im-
mediate aftermath of the 2011 Japan earthquake and tsunami, and the subsequent nuclear
crisis. The findings of this previous study revealed that no sampled foreign exchange
market has suffered from a contagion; however, the stock markets of Taiwan, Bahrain,
Saudi Arabia, and South Africa have experienced a contagion effect (Asongu 2012). In
addition, the impacts of floods on the economy (e.g., property sectors), environment, and
society also have been widely studied (Tran et al. 2008; Krausmann and Mushtaq 2008;
Eves and Wilkinson 2014). Expert judgement is used to clarify the rural community’s
coping mechanism to flood disasters.
The event analysis employed in the present study is a statistical method that does not
consider the time series of stationary and seasonality issues. This method is widely applied
in empirical analyses in the accounting and behavioral finance areas. It analyzes the
volatility of stock prices after one or more events and determines whether such events can
result in abnormal returns and consequently in fluctuations in stock prices. The method also
identifies whether the correlation is positive or negative.
Most domestic studies have focused on the effects of the Wenchuan earthquake on the
domestic stock market (Liu et al. 2011; Sun 2012). Only a few works have focused on the
effects of foreign unexpected climatic events on the domestic stock market.
Therefore, the contributions of our study are threefold. First, we empirically analyze the
effects of climatic disasters on the Chinese stock market through event analysis. Second,
we conduct a comparative analysis of the effects of domestic and foreign climatic disasters
on the Chinese stock market. Third, we draw each effect on each industry and contrast the
degrees of the effects.

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The paper is organized as follows. The data and methodology used throughout the paper
are explained in the next section. The third section presents the empirical results and
discusses the results. Then, we conclude the article, and several reasonable recommen-
dations are proposed in the last section.

2 Data and methodology

2.1 Data

To study the influence of unexpected climatic events on the Chinese stock market in
different industries, we select the daily closing price of the Shenzhen Component Index
and 21 indices according to industry (Table 1) compiled by the Shenzhen Stock Exchange
(SZSE). We choose the Shenzhen Component Index daily closing price as the represen-
tative of the Chinese stock market to study the effects of events on the Shenzhen stock
market. Sample data are obtained from the RESSET database (http://www2.resset.cn/
product/).
Event studies have been widely conducted in virtually all business and economic dis-
ciplines. The first event study was perhaps published by Dolley (1933) who investigated
the effect of stock splits on stock prices. The modern methodology of event studies was
introduced by Ball and Brown (1968) and Fama et al. (1969); however, the methodology
has evolved over time (MacKinlay 1997). MacKinlay (1997), Binder (1998), and Kothari
and Warner (2006) have conducted event studies in finance.

Table 1 Twenty-one industry

Symbol Name Abbreviation
indices (SZSE) and its
abbreviation
399110.SZ SZSE AGRICULTURE ID AGR
399120.SZ SZSE MINING INDEX MIN
399130.SZ SZSE MFG INDEX MFG
399131.SZ SZSE FOOD & BEV IDX FOO
399132.SZ SZSE TEXT & APP IDX TEX
399133.SZ SZSE TIMBER & F IDX TIM
399134.SZ SZSE PAPER & PR IDX PAP
399135.SZ SZSE PETROCHEM IDX PET
399136.SZ SZSE ELECTRONIC IDX ELE
399137.SZ SZSEVMETAL & NM IDX MET
399138.SZ SZSE MACHINERY IDX MAC
399139.SZ SZSE PHARMACY INDEX PHA
399140.SZ SZSE UTILITIES IDX UTI
399150.SZ SZSE CONSTR INDEX CON
399160.SZ SZSE TRANSPORT IDX TRA
399170.SZ SZSE IT INDEX IT
399180.SZ SZSE WHOLESALE IDX WHO
399190.SZ SZSE FINANCIALS IDX FIN
399200.SZ SZSE REAL EST INDEX REA
Symbol and name from Yahoo 399210.SZ SZSE SOCIAL SER IDX SOC
Finance (http://finance.yahoo. 399220.SZ SZSE MEDIA INDEX MED
com/)

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Esmaon Window Event Window Postevent Window

T0 T1 0 T2 T3

Fig. 1 Event study time line

2.2 Methodology: event analysis

Event analysis comprises three timeframes, namely the estimation, event, and post-event
windows. These time frames are illustrated in Fig. 1. The estimation window, which is
sometimes referred to as the control period, is used to estimate the parameter of the normal
return model. The length of the estimation window is represented as T0 - T1, where the
event occurs at 0. The length of the event and post-event windows can be represented as
T2 - T1 ? 1 and T3 - T2, respectively.

2.2.1 Measuring stock behavior in the estimation and event windows

The estimation window is used to estimate a model of the stock returns under ‘‘normal’’
circumstances. The most common model used for this purpose is the market model, which
is essentially a regression of stock and market index returns. The market model for stock i
can be expressed as follows:
Rit ¼ ai þ bRmt þ nit ; Eðnit Þ ¼ 0; Vðnit Þ ¼ r2it ; ð1Þ
where Rit and Rmt represent the stock and market returns on day t, respectively. nit follows
the normal distribution random error term, namely nit * N(0, r2).
We can measure the effect of an event on the stock return in the event window by using
Eq. (1). For a particular day t in the event window, we define abnormal stock return (ARit)
as the difference between actual return (Rit) and the return predicted by the equation, i.e.,
 mt :
ARit ¼ Rit  ai  bR ð2Þ

Coefficients ai and b are estimated by running ordinary least-square regression over the
estimation window.
The cumulative abnormal return (CARit) is a measure of the total abnormal returns
during the event window. The variable CARit is the sum of all abnormal returns from the
beginning of the event window T1 until a particular day t in the window, i.e.,
X
t
CARit ¼ ARit : ð3Þ
T1

2.2.2 Standardized abnormal return (SAR) and standardized cumulative abnormal

return (SCAR)

The formula for SAR is as follows:

ARit
SARit ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffi
ffi; ð4Þ
S2 ARit

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Nat Hazards (2015) 77:1979–1992 1983

where SARit is the SAR of stock i in period t, ARit is the abnormal returns of stock i in
period t, and S2ARit is the standard deviation of the abnormal returns of stock i in period t.
The following are the formulas for SCAR, which is the cumulative SAR for each day in
the event window:
X
t2
SCARit ¼ SARit ; ð5Þ
t¼t1

X
N
SCAR ¼ SCAR=N; ð6Þ
it
i¼1

where SCARit is the daily SAR of the event window, SCARit is SCAR, t1 is the first day of
the time window, i.e., event day (-15), t2 is the date of the day after the event window, and
N is the length of the window.

2.2.3 Significance test

Based on CARit, the t test is used to investigate whether the events in the event window are
statistically significant. The null and alternative hypotheses are as follows.
Null hypothesis (H0 = 0): In the event window, the event does not have a significant
effect on the stock market of various industries, i.e., CARit = 0.
Alternative hypothesis (H0 = 0): In the event window, the event has a significant
influence on the stock market of various industries, i.e., CARit = 0.
The test statistic is as follows:
CARit
tðn  1Þ ¼ pffiffiffi ; ð7Þ
SðCARit Þ= n
where S is the variance of the sample mean, that is,
sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
1 X n
SðCARit Þ ¼ ðARit  ARit Þ2 ; ð8Þ
n  1 t¼1

where n is the number of indices, and ARit is the mean value of ARit.

3 Effects of climatic disasters in China on the Chinese stock market

The influence of climatic disasters on stock markets can demonstratively manifest the
swiftness in which the stock market, as an economic barometer, reacts to new information
and its potential role in instructing investors. The present study explores the 2008 snow
storm and the 2011 strong tropical storm in China through event analysis.
In this study, the time during which a nation first releases a disastrous coverage to the
public is considered as the standard date of the event. Therefore, the time of the two events
is January 21, 2008, and June 27, 2011, respectively. The date of the event is the event day
(0).
Considering the long periods of the two disasters and the requirements of an event
analysis, this study uses common standards as references. Thus, the event window of the
two events is 15 days before and 15 days after the event, i.e., day (-15 to 15). The

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1984 Nat Hazards (2015) 77:1979–1992

(a) 0.02 (b) 0.02

0.015
0.01
0.01
0.005 0

returns
returns

0 -0.01
-0.005
-0.01 -0.02
-0.015 -0.03
-0.02
-0.025 -0.04
-0.03 -0.05
-15 -12 -9 -6 -3 0 3 6 9 12 15 -15 -13 -11 -9 -7 -5 -3 -1 1 3 5 7 9 11 13 15
event window event window

Fig. 2 a CAR during the event window of the snow disaster in 2008 and b CAR during the event window
of the strong tropical storm disaster in 2011

estimated period is 100 days before the event window. The same approach is used in
analyzing foreign climatic events. Figure 2 plots the values of the CAR during the event
window of the snow disaster in 2008 (Fig. 2a) and the strong tropical storm disaster in
2011 (Fig. 2b).
As shown in Fig. 2, the CAR of the entire stock market exhibited a declining trend
before the snow storm in 2008. The CAR only increased to a positive value (0.0016)
6 days before the event. Afterward, it declined and became negative. The CAR on the day
of the event dropped to the lowest point (-0.0261), which suggests that the event had a
significant effect on the Shenzhen stock market. The CAR began increasing after the event
and reached its maximum (0.0154) 9 days after the event. However, CAR exhibited a clear
downward trend, which indicates that the stock market has begun conducting price cor-
rection (Fig. 2a).
The CAR of the entire stock market was negative before the strong tropical storm in
2011 but changed to 0.0028 6 days before the event and to 0.0047 the day before the event.
The value of CAR became positive, and overall performance was rising. The effect of the
event on the Shenzhen stock market was obscure. However, the CAR demonstrated a
persistent declining trend and became negative. The CAR dropped to its lowest point
(-0.0446) 15 days before the event, which illustrates the persistent influence of the event
on some industries in the stock market (Fig. 2b).
Figure 3 presents the fluctuations in the average abnormal returns on each industry in
the Chinese stock market, as well as the trends of aforementioned index during and after
the event.
As shown in Fig. 3a, the average abnormal returns of MIN, MFG, FOO, ELE, MET,
PHA, UTI, CON, TRA, WHO, FIN, SOC, and MED exhibited a significant declining trend
during the snow storm. Except for PHA and SOC, the industries experienced an apparent
rising trend in their average abnormal returns. CON presented the largest swing among
these industries. Meanwhile, AGR, TEX, TIM, PAP, PET, MAC, IT, and REA showed a
significant rising trend in their average abnormal returns during the snow storm. Except for
TEX, the rest of the industries demonstrated a declining trend in average abnormal returns.
Among the industries that experienced the decline, AGR exhibited maximum fluctuation.
As shown in Fig. 3b, the average abnormal returns of MIN, PAP, PET, MET, MAC,
UTI, TRA, WHO, FIN, and REA exhibited a significant declining trend during the strong
tropical storm. Except for PET, MET, and UTI, all industries experienced an apparent
rising trend in average abnormal returns. Among these industries, MIN presented the
largest swing. Meanwhile, AGR, MFG, FOO, TEX, TIM, ELE, PHA, CON, IT, SOC, and

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(a)

(b)

Fig. 3 a Trend of the average abnormal returns of the snow disaster in 2008 and b trend of the average
abnormal returns of the strong tropical storm disaster in 2011. Note 3: 1, 2, and 3 on behalf of estimation
window, event window, and post-event window, respectively

MED showed a significant rising trend in average abnormal returns during the snow storm.
The rest of the industries, except for MFG, ELE, and PHA, experienced a declining trend
in average abnormal returns, with CON presenting the maximum fluctuation.
According to Table 2, the snow storm had a statistically significant effect on 19 in-
dustries and an insignificant effect on CON and SOC. Moreover, the effect of the snow
storm on these industries varied. The snow storm had a negative effect on some industries,
such as MFG, FOO, and FIN, and a positive effect on other industries, including TRA and
REA.
The strong tropical storm had a statistically significant effect on 18 industries and an
insignificant effect on AGR, TEX, and TIM. Moreover, the effect of the strong storm on
the 18 industries varied. The tropical storm negatively affected some industries, such as
MIN, UTI, and FIN, but positively affected other industries, including ELE, CON, and
PHA.
Table 2 also shows that the snow storm had the largest positive effect during the event
window on IT, followed by AGR. By contrast, the event had the largest negative effect on
MED, followed by FOO. During the post-event window, the snow storm exhibited the
largest positive effect on CON, followed by TEX. The tropical storm presented the largest
positive effect during the event window on CON, followed by PHA. The storm had the
largest negative effect on TRA, followed by UTI. After the disaster, the largest positive
effect was observed on MED, followed by CON, whereas the largest negative effect was
recorded on MET, followed by UTI.

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Table 2 CAR and SCAR during the event window and post-event window
IdxNm Snow disaster Strong tropical storm disaster

CAR Value of T Event Post-event CAR Value of T Event Post-event

window window window window

AGR 0.155 14.583** 0.464 -0.144 0.121 1.978 0.076 0.462

MIN -0.046 -4.575** -0.120 0.077 -0.091 -13.623** -0.206 -0.034
MFG -0.014 -10.866** -0.082 -0.058 0.003 8.830** 0.151 -0.143
FOO -0.153 -18.079** -0.305 -0.105 0.109 7.997** 0.179 0.422
TEX 0.080 5.612** 0.023 0.321 0.023 1.245 0.025 0.239
TIM 0.055 12.750** 0.114 -0.023 0.037 0.903 0.004 0.249
PAP 0.074 13.809** 0.175 0.021 -0.015 -17.540** -0.073 -0.027
PET 0.092 15.930** 0.258 0.143 -0.040 -5.771** -0.080 -0.220
ELE -0.029 -8.684** -0.092 0.014 0.056 11.229** 0.273 0.229
MET -0.028 -12.473** -0.161 0.117 -0.076 -6.841** -0.094 -0.501
MAC -0.034 4.209** 0.164 -0.493 -0.023 -8.320** -0.111 -0.163
PHA -0.032 -11.093** -0.038 -0.098 0.073 9.696** 0.362 0.107
UTI -0.031 -9.489** -0.179 0.158 -0.160 -11.493** -0.289 -0.496
CON 0.096 -0.457 -0.075 0.447 0.251 10.886** 0.464 0.752
TRA 0.046 7.146** -0.001 0.271 -0.127 -12.260** -0.438 -0.594
IT 0.124 17.733** 0.550 -0.214 0.033 6.826** 0.149 0.103
WHO -0.135 -24.596** -0.185 -0.170 0.007 -7.662** -0.053 0.162
FIN -0.154 -11.242** -0.222 -0.139 -0.070 -4.564** -0.102 -0.120
REA 0.153 14.417** 0.201 0.020 -0.049 -2.204* -0.116 -0.044
SOC -0.008 1.353 -0.001 -0.017 0.078 9.640** 0.162 0.599
MED 0.004 4.358** -1.577 -0.356 0.090 2.728** 0.286 7.618
** and * denote 5 and 1 % significant level, respectively. ‘‘IdxNm’’ denotes indices name

We can conclude that the snow storm and strong tropical storm affected various in-
dustries differently. Moreover, the events had different effects on the same industry in
China. For example, the effect of the snow storm on the agricultural industry was not
statistically significant, whereas that of the strong tropical storm was statistically sig-
nificant on the same industry. Moreover, the effect of the strong tropical storm on the
construction industry was not statistically significant, but that of the snow storm was
statistically significant.

4 Effects of climatic disasters in the USA on the Chinese stock market

The dates of the hurricane and snow storm in the USA were August 25, 2008, and February
14, 2006, respectively. The date of the event is represented by 0 in the data analysis. The
event window is 5 days before and 5 days after the event, that is, from -5 to 5. For the
estimated period of events, we used the most common estimation period, that is, 100 days
before the event window. The analysis of the estimated interval (-105 to -6) and the
length of the post-event window is 15 days after the event occurred.

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Nat Hazards (2015) 77:1979–1992 1987

(a) 0.005 (b) 0.02

0 0.015
-0.005
0.01

returns
-0.01
returns

-0.015 0.005
-0.02 0
-0.025 -0.005
-0.03
-0.01
-0.035
-0.04 -0.015
-5 -4 -3 -2 -1 0 1 2 3 4 5 -5 -4 -3 -2 -1 0 1 2 3 4 5
event window event window

Fig. 4 a CAR during the event window of the hurricane disaster in 2005 and b CAR during the event
window of the snow storm disaster in 2006

The CAR value experienced an apparent downward trend before the event, which
indicates that the market had received the information before the unexpected event oc-
curred. A number of institutional investors may have deliberately suppressed the price. The
CAR value on the day of the event showed a persistent downward trend and reached the
lowest point (-0.0361) 2 days after the event. CAR exhibited a short upward trend 3 days
after the event. This finding indicates that the stock price during that day failed to fully
reflect changes on the information. The CAR value has declined since 3 days after the
event, which indicates that the effect of the event on some industries is persistent (Fig. 4a).
The CAR value also experienced an apparent downward trend before the snow storm in
the USA in 2006. In particular, 5 days (0.0108) to 2 days (-0.0090) before the event, the
CAR value showed a significant declining trend before reaching the lowest point
(-0.0090). Thus, the event had a significant effect on the market. After the event, stock
prices showed a generally rising trend. Hence, the effect of the event on all industries was
reduced (Fig. 4b).
In the present study, the fluctuations in the average abnormal returns of each industry in
the Chinese stock market, as well as the trends of the aforementioned index during and
after the event, are given as follows.
As shown in Fig. 5a, the average abnormal returns of MIN, MFG, FOO, TIM, PAP,
ELE, MET, CON, TRA, IT, and FIN exhibited a significant declining trend during the
event window of the hurricane but presented an apparent rising trend in the post-event
window except for PHA and SOC. FIN had the largest swing. Accordingly, the average
abnormal returns of AGR, TEX, PET, MAC, PHA, UTI, WHO, REA, and SOC sig-
nificantly increased in the post-event window. In addition to MED and TEX, which
demonstrated a significant declining trend in average abnormal returns, the rest of the
industries showed an apparent rising trend in their average abnormal returns. Among these,
MED presented the largest fluctuation.
As shown in Fig. 5b, the average abnormal returns of MIN, MFG, TEX, PAP, ELE,
MET, CON, TRA, IT, FIN, SOC, and MED experienced a significant declining trend
during the snow storm. Except for MIN, the industries presented an apparent rising trend in
their average abnormal returns. Among these industries, IT had the largest swing. AGR,
FOO, TIM, PET, MAC, PHA, UTI, WHO, and REA showed a significant rising trend in
their average abnormal returns during the snow storm. By contrast, the rest of the indus-
tries, except for WHO, UTI, and REA, presented a declining trend in average abnormal
returns. Among these industries, REA had the largest fluctuation.

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1988 Nat Hazards (2015) 77:1979–1992

(a)

(b)

Fig. 5 a Trend of the average abnormal returns of the hurricane disaster in 2005 and b trend of the average
abnormal returns of the snow storm disaster in 2006

According to Table 3, the hurricane had a statistically significant effect on 18 industries

and an insignificant effect on ELE, UTI, and REA. Moreover, the effect of the hurricane on
these 18 industries varied. The hurricane negatively affected some industries, such as
MFG, FOO, and FIN, but positively affected other industries, including TRA and REA.
The snow storm had a statistically significant effect on 13 industries but an insignificant
effect on MIN, MFG, TEX, PET, MET, TRA, FIN, and MED. Moreover, the effect of the
snow storm on these 13 industries varied. The snow storm negatively affected some
industries, including CON, but positively affected other industries, such as, AGR.
Table 3 also shows that the hurricane had the largest positive effect on MED, followed
by SOC, and the largest negative effect on MET, followed by MIN, during the event
window. During the post-event window, the hurricane had the largest positive effect on
MED, followed by WHO, and the largest negative effect on FIN, followed by TIM.
The snow storm had the largest positive effect on WHO, followed by REA, and the
largest negative effect on ELE, followed by CON, during the event window. During the
post-event window, the disaster had the largest positive effect on FOO, followed by WHO,
and the largest negative effect on REA, followed by IT.
We can conclude that the hurricane and snow storm had different effects on various
industries. Moreover, the two disasters presented different effects on the same industry in
China. For example, the effect of the hurricane on the real estate industry was statistically
insignificant, whereas that of the snow storm was statistically significant. Similarly, the
effect of the snow storm on the financial and insurance industries was statistically in-
significant, whereas the hurricane produced a statistically significant effect on the same
industry.

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Table 3 CAR and SCAR during the event window and post-event window
IdxNm Hurricane disaster Snow storm disaster

CAR Value of T Event Post-event CAR Value of T Event Post-event

window window window window

AGR 0.021 5.608** 0.108 0.117 0.023 11.601** 0.219 0.038

MIN -0.029 -9.908** -0.280 0.071 -0.063 -0.169 -0.174 -0.584
MFG 0.001 -4.255** -0.100 0.157 0.007 0.543 -0.178 0.714
FOO -0.032 -17.331** -0.198 -0.185 0.046 3.729** 0.084 0.874
TEX 0.016 5.607** 0.235 -0.076 0.019 0.825 -0.059 0.427
TIM -0.069 -5.306** -0.146 -0.214 0.109 7.353** 0.138 0.390
PAP -0.025 -10.007** -0.177 -0.096 -0.018 -17.945** -0.179 -0.010
PET 0.024 8.702** 0.213 0.201 0.010 -0.836 0.087 0.081
ELE 0.007 -0.496 -0.053 0.130 -0.058 -7.735** -0.450 -0.214
MET -0.026 -14.904** -0.449 -0.095 0.001 0.240 -0.144 0.170
MAC 0.015 4.776** 0.137 0.181 0.011 6.782** 0.099 0.231
PHA 0.014 2.606* 0.153 0.080 0.022 4.353** 0.236 0.139
UTI -0.005 -1.007 0.046 -0.130 0.022 12.724** 0.376 -0.023
CON -0.025 -8.858** -0.285 0.050 -0.052 -6.515** -0.308 -0.161
TRA -0.014 -4.903** -0.098 -0.053 -0.007 -0.802 -0.156 0.080
IT -0.012 -5.228** -0.126 0.008 -0.103 -15.067** -1.067 -0.312
WHO 0.050 6.424** 0.340 0.318 0.075 9.693** 0.701 0.423
FIN -0.095 -5.182** -0.099 -0.368 0.022 1.239 -0.033 0.205
REA -0.010 1.272 0.002 -0.109 0.005 3.185** 0.667 -0.676
SOC 0.056 9.492** 0.435 0.195 -0.031 -10.003** -0.235 -0.092
MED 0.094 17.460** 5.501 0.451 0.017 -0.291 31.069 2.844

5 Conclusion and recommendations

This study employed event analysis on 21 indices according to industry from the stock
market of SZSE to investigate the effects of climatic events on the Chinese stock market.
The empirical results are as follows.
(1) Unexpected climatic events in China and other countries have a significant effect on
the Chinese stock market. The influence of the disasters on the Chinese stock market
varies. Unexpected climatic events in China have a greater effect on the volatility of
the Chinese stock market than those that occurred in other countries.
(2) The snow storm in China in 2008 significantly affected 19 industries, but the snow
storm in the USA in 2006 significantly affected only 13 industries. Thus, the effect
of abrupt climatic events in other countries on the Chinese stock markets may be
indirect. Moreover, the same climatic event can have different effects on various
industries in China, whereas different climatic events have varying effects on the
same industry in China.
The snow storm in China in 2008 exhibited the largest positive effect on the con-
struction industry, followed by the textile and apparel industries. By contrast, the event
exerted the largest negative effect on the machinery industry, followed by the media

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industry. Meanwhile, the snow storm in the USA in 2006 had the largest positive effect on
the food and beverage industries, followed by the wholesale industry. By contrast, it had
the largest negative effect on the real estate industry, followed by the information tech-
nology industry. The strong tropical storm in China in 2011 had the largest positive effect
on the media industry, followed by the construction industry. By contrast, the event had the
largest negative effect on the metal and nonmetal industries, followed by the utilities
industry. Meanwhile, the hurricane in the USA in 2006 had the largest positive effect on
the media industry, followed by the wholesale industry. The same event presented the
largest negative effect on the financial and insurance industries, followed by the timber and
furniture industries.
(3) The magnitude of the effect on each industry depends on the sensitivity of the
industry to the climatic event. Open work-related industries, such as construction,
mining, and transportation, have an extremely close relationship with unexpected
climatic events. Thus, these industries are more sensitive to climatic events than
other industries. Weather-based industries, such as agriculture, are also sensitive to
climatic events. Considerable research has focused on the sensitivity of agricultural
meteorology (Liu et a1. 2010). The econometric model of meteorological factors is
used to evaluate the weather sensitivity of 11 economic industries in the USA
(Demuth et al. 2007). The manufacturing, food and beverage, textile and apparel,
timber and furniture, papermaking and printing, petrochemical, electronic, and metal
and nonmetal industries are less sensitive to unexpected climatic events than other
industries. Indoor industries are the least sensitive to weather conditions.
Unexpected climatic events also have some effects on the wholesale and retail
trade industries, as well as on the real estate industry. For example, the temperature
during summer is high, and thus, the sale of air conditioners increases. In addition,
unexpected climatic events also have some effects on related industries, such as
pharmacy and utilities. For example, floods caused by storms increase the demand
for medicine-related products.
(4) The returns and volatility of various industries demonstrated strong sensitivity
during the event window of climatic disasters. However, most industries began to
slow down after the climatic disaster and showed changed degrees of recovery trend.
After the hurricane, the average abnormal returns declined further in the financial
and insurance industries, which show that the effect of the hurricane on these
industries was persistent. Moreover, the average abnormal returns declined further
in the pharmacy industry after the snow storm. The reasons for this situation can be
roughly summarized into the following: efficiency of information dissemination
channels on climatic disasters, disasters caused by snow storms and other climatic
events that we mentioned in correlation with the industry, and effect of snow storms
and other climatic events we mentioned earlier on the product or on commodity
supply and demand.
Thus, investors should make scientific decisions and rational investments. Simultane-
ously, investors can combine scientific decision making with foreign investment practices
under a homogeneous case to consider comprehensively, and thus avoid stock market risks.
Regulators should fully perform their role in the overall control of disastrous events caused
by climate change. Relevant departments should improve the prevention of major climatic
disasters and management before and after disasters. Efforts should also be made on the
development of insurance and prevention systems to reduce the effects of disasters. The
socioeconomic effect should be effectively controlled in a timely manner to help the stock

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markets in China run in a favorable condition and for the economy to develop stably. For
example, additional rational regulations on the operation of stock markets, which are the
barometer of an economy, should be made. A variety of laws and regulations should be
passed to develop a strong and solid platform for resisting risks.

Acknowledgments We thank for the financial support from National Natural Science Foundation of China
(Nos. 71371100, 71271118, 70901044) and the Humanities and Social Sciences Fund sponsored by the
Ministry of Education of the People’s Republic of China (No. 13YJCZH007). This work also sponsored by
Qing Lan Project of Jiangsu Province (2014), Program for Innovative Research Team of Shanghai
University of Finance and Economics, and a Project Funded by the Priority Academic Program Develop-
ment of Jiangsu Higher Education Institutions.

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