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Hurricane impacts on financial markets

Wall Street can't predict better than National Hurricane Center

The price of extreme weather uncertainty is increasing the cost for companies exposed to hurricane risk.
The price of extreme weather uncertainty is increasing the cost for companies exposed to hurricane risk.

JACKSONVILLE, Fla – Economists looked at the price of hurricanes on the financial markets and they found Wall Street fails at predicting better than the National Hurricane Center.

Businesses will have to price in the uncertainty of extreme weather as climate change makes storms more frequent and severe.

But damage is just a fraction of the economic cost in the aftermath. Business interruptions  result in lost revenue well after initial damage.

Recent damage from Hurricane Michael is estimated by the National Weather Service to cost over $30 billion in losses.

The financial analysis firm, The Perryman Group, estimates that losses in Florida from Hurricane Michael over the next few years include $38.9 billion in expenditures, $16.9 billion in real gross product, $11.2 billion in real personal income.

Federal Reserve Board economist, Brigitte Roth Tran, says the cost to companies is significant.

Stocks of firms exposed to storm perils usually underperform in the months following hurricane damage.

The price of a company exposed to hurricane risk will drop as markets often price in landfall uncertainty before a storm hits or dissipates.

Tran says none of her research shows any evidence that Wall Street forecasts better than the National Hurricane Center.

Improvement in forecasts have saved money for investors by lowering volatility which implies lower management costs for businesses.