STOCK MARKET RESPONSE TO METEOROLOGICAL DISASTER RISK: FROM LIQUIDITY PERSPECTIVE

Abstract

This study investigates the impact of meteorological disaster risk perception on stock liquidity of Chinese listed companies by constructing meteorological disaster risk perception indicators through the Baidu index. Empirical evidence reveals that an increase in meteorological disaster risk perception decreases investors’ risk appetite and increases investors’ loss aversion, which in turn negatively affects stock liquidity. In addition, the increase in meteorological disaster risk perception also shrinks stock trading volume by reducing investor sentiment. The negative effect of meteorological disaster risk perception on stock liquidity is more pronounced in summer and winter and for firms located in water-rich areas. The findings of this study provide empirical evidence from investors’ perspective for understanding the impact of meteorological disasters on stock market liquidity.