Extreme weather alerts can move markets – here’s what investors can learn from our new research
- Written by Styliani Panetsidou, Assistant Professor of Finance, Coventry University
Many of us check the weather forecast to plan our day – to decide whether to carry an umbrella, postpone a trip or work from home when snow is on the horizon. But weather alerts can influence more than just our personal routines. They can also move financial markets.
We have explored this phenomenon in our new research[1] and our findings were both surprising and increasingly relevant in a world of climate change. It seems severe weather alerts can indeed move stock prices. This was unexpected, as alerts are simply warnings, not actual disasters. Yet they are enough to shift market values.
Using detailed UK data on weather alerts from 2015 to 2023 alongside the stock prices of firms with headquarters in affected areas, we showed that investors react negatively to severe weather warnings. On average, firms with headquarters in regions covered by severe weather alerts see their share prices drop by about 1%. It’s a seemingly small drop but it can actually wipe out millions in value for large companies.
This suggests that weather alerts, once considered mainly for their practical and safety implications, are now treated as market-moving information. Notably, the severity of the warning matters. Red alerts – the highest level issued[2] by the UK Met Office, signalling real danger to life and infrastructure – trigger sharper market declines than amber alerts.
The market’s response isn’t spread evenly across all companies. Firms in weather-sensitive industries, such as energy and transport, tend to see sharper declines. For example, when heavy rain or snow threatens to halt trains or disrupt energy supply, it appears that investors quickly factor in the potential costs.
Smaller, high-risk businesses listed on the UK’s growth stock exchange – the Alternative Investment Market[3] (AIM) – also face steeper selloffs. This could be because investors doubt their resilience to sudden shocks.
What’s striking is that these reactions are not just emotional selloffs. Investors appear to be making deliberate, strategic pricing decisions based on exposure to weather risks. Markets are, in effect, treating severe weather alerts as early warnings, not just for public safety but also for financial vulnerability.
Interestingly, one detail stood out to us – updates from the Met Office helped to calm investor nerves. When initial warnings are updated with more information, such as revised timings or affected areas for severe weather, the negative market reaction is smaller. It’s a lesson familiar to anyone who follows stock markets. Uncertainty can be more damaging than bad news, and timely information helps reduce it.
Over the past decades, extreme weather has become more frequent, more severe and more costly. The UN’s Intergovernmental Panel on Climate Change reports that the number of weather-related disasters has increased fivefold since 1970[4], leaving millions dead and causing trillions of dollars in economic damage.
Traditionally, financial research has focused on the aftermath of disasters – the wreckage from floods, hurricanes or wildfires. Our findings reveal something subtler but no less important. Markets are already adjusting when severe weather warnings are issued. That makes the alerts themselves a kind of financial signal.
For investors, this adds a new dimension of information to monitor. A weather alert may no longer be just a headline, it may contain material information that shapes market moves.
For firms, especially in sectors directly exposed to weather disruption, the research highlights the importance of building climate resilience and being transparent about weather-related risks. A company whose operations can grind to a halt at the first sign of heavy snow or extreme heat may find itself increasingly punished by the markets.
And this isn’t only about catastrophic storms or once-in-a-century floods. Our study shows that even amber alerts – for snowstorms, heatwaves or icy conditions – can ripple through markets. That should serve as a warning of its own. Climate volatility is becoming a day-to-day economic factor, not just a distant environmental concern.
Weather has always shaped how people live. Now it’s starting to shape how they invest. A storm warning, it turns out, can matter almost as much to the markets as the storm itself.
References
- ^ new research (www.sciencedirect.com)
- ^ the highest level issued (www.metoffice.gov.uk)
- ^ the Alternative Investment Market (www.londonstockexchange.com)
- ^ increased fivefold since 1970 (sdgs.un.org)
- ^ Josie Elias/Shutterstock (www.shutterstock.com)
