HURRICANE KATRINA'S EFFECT ON OIL COMPANY STOCK PRICES: A TEST OF MARKET EFFICIENCY.

Document Type

Article

Publication Date

2021

Abstract

This study tests market efficiency by investigating the effect on oil company stock prices caused by the landfall of Hurricane Katrina. We should expect that oil firms with significant investments interests in Katrina's path would have negative stock price returns in a certain time frame. Ten oil companies' stocks with significant interests in the Gulf of Mexico are analyzed to determine the effect of Hurricane Katrina on stock price's risk adjusted rates of return before and after event date of August 23, 2005. Results show that stock prices began to drop significantly before the hurricane made landfall, displaying the market's semi-strong form of efficiency. Statistical tests show that the information about the storm made significant impacts on the difference between the actual average rates of return of the sample stocks and the corresponding risk adjusted average expected returns. Results shows that oil company stock price returns started a downturn at least nine days before Hurricane Katrina made landfall.

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