Marinela Finta, Singapore Management University -Retail Investors’ Activity and Climate Disasters

Title: Retail Investors’ Activity and Climate Disasters

Abstract: We analyze the effects of climate disasters on retail investors’ trading activity using U.S. equity transactions data from 2010 to 2018 alongside the billion-dollar disasters. We identify retail trades following Boehmer et al. (2021)’s sub-penny approach and propose climate disasters as a new channel affecting retail investors’ trading behavior. Results show that retail investors trade significantly less during and around climate disasters, and retail buyers exhibit higher returns than sellers. Climate disasters weaken the positive return predictability of the past month’s order imbalances while strengthening it for the past six months’ order imbalances. In the short run, firms within climate disaster counties with retail net buying underperform those with negative imbalances. Instead, in the long run, firms within and outside climate disaster counties with positive order flows outperform those with negative order flows. Our findings are consistent with the view that climate disasters are highly prominent and can temporarily alter the informativeness of retail investors’ trades, rendering their behavior more consistent
with noise trading in the short run. Over longer horizons, the evidence is consistent with the information story, whereby retail investors act as informed traders.

Presenter:  Marinela Finta, Singapore Management University

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