Weather Shocks and Stock Market Performance: Insights from China's Agricultural Sector

In recent decades, global climate change has resulted in a notable increase in the frequency and severity of extreme weather events worldwide, including in China, presenting considerable challenges for agricultural companies. For agricultural companies, these events signify heightened market risks related to production and operations, impacting financial markets. This study employs event study methodology and the Fama–French three-factor model to analyze the abnormal impacts of extreme rainfall and high-temperature events on agricultural stock returns in China from 2013 to 2023. This research finds a significant negative impact on the stock prices of agricultural companies within a short-term window (11 days) around extreme weather events, especially on the day before the event. Furthermore, the study finds that the market's reaction varies with the severity of weather disasters. Our research suggests that policymakers should recognize the consequences of such events on the stock market and adopt the following policies: strengthen corporate climate risk management, developing financial products related to climate risk, enhancing climate risk information disclosure, and bolstering government support and policy guidance.