# Are the Financial Markets Sensitive to Hydrological Risk? Evidence from the Bovespa

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## Abstract

**:**

## 1. Introduction

## 2. Literature Review

## 3. Data and Sample

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## 4. Methodological Background

- Weak-form efficiency: stock prices reflect all historical information published.
- Semi-strong-form efficiency: stock prices fully reflect all past public information as well as recent public information available.
- Strong-form efficiency: stock prices reflect public and unpublicized or “insider” information.

- $N{R}_{it}$ the normal return of a stock “i” is at time “t”.
- ${R}_{mt}$ is the market index;
- $\widehat{{\alpha}_{i}}$ and $\widehat{{\beta}_{i}}$ are the parameters estimated by OLS, using 250 trading days prior to the event window.

## 5. Research Design

- ${P}_{it}$ is the price of the firm’s stock $i$ at day $t$.
- ${P}_{it-1}$ is the price of the firm’s stock $i$ the day before.

_{it}) following the Equation (1).

## 6. Finding and Results

_{0}) or different to zero (H

_{1}), that is

_{0}, accepting H

_{1}for all the event windows. As a consequence, we find a statistically significant abnormal behavior produced by the draught announcement. In the following Figure 2, Figure 3, Figure 4, Figure 5, Figure 6 and Figure 7, we illustrate those results of the t-test (95%) by using the corresponding histograms and P-P plots. It is easy to infer that the null hypothesis, represented by the dot H

_{0}, is rejected for all the estimation windows, since the mean of CAARs is located far from it.

_{0}.

_{0}; accepting that the median of CAARs differs from the hypothesized one.

_{0}: μ

_{1}− µ

_{2}= 0, indicating that the difference between the means, in terms of CAARs, of the two subsamples (nonperishable versus perishable one) is equal to 0. On the contrary, the alternative hypothesis states H

_{1}: μ

_{1}− µ

_{1}≠ 0. In Table 7, we summarize the results of the t-test.

## 7. Conclusions

## Author Contributions

## Funding

## Conflicts of Interest

## References

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Ticker | Company | Weight (%) | Main Activity |
---|---|---|---|

BRFS3 | BRF SA | 20 | Operational holding: frozen foods: meat and derivatives. |

JBSS3 | JBS | 7.56 | Frozen foods: meat and derivatives. |

CSAN3 | COSAN | 1.6 | Sugar production, alcohol, ethanol, combustible distribution |

MDIA3 | M.DIASBRANCO | 1.11 | Production and sale of wheat flour, sponge cakes, margarine, snacks, etc. |

MRFG3 | MARFRIG | 0.85 | Production and distribution of meats and derivatives. |

SMTO3 | SAO MARTINHO | 0.71 | Production and sale of sugar and derivatives. |

BEEF3 | MINERVA | 0.4 | Production and sale of pork meat, poultry, etc. |

Event | Date | Operational Loss | Event Description |
---|---|---|---|

FAOAnnouncement | 3 February 2015 | $4300 MM | Brazil risks a massive loss of crops of all kinds of agricultural products, which will generate an increase in prices in the next months. |

Event Window | BRFS3 | JBSS3 | CSAN3 | MDIA3 | MRFG3 | SMTO3 | BEEF3 | Average |
---|---|---|---|---|---|---|---|---|

E(−40,+40) | −0.3% | 0.28% | −0.09% | −0.03% | −0.50% | −0.13% | −0.38% | −0.14% |

E(−20,+20) | −0.09% | 0.17% | 0.02% | −0.06% | −0.71% | −0.05% | −0.10% | −0.12% |

E(−5,+5) | 0.20% | −0.04% | −0.19% | −0.48% | −0.76% | −0.56% | −0.41% | −0.32% |

Variable | Mean | t-Value | p-Value | 95% CI |
---|---|---|---|---|

CAAR (−5,+5) | −0.01877 | −3.22 | 0.009 | (−0.03174; −0.00580) |

CAAR (−20,+20) | −0.03529 | −13.00 | 0.000 | (−0.04078; −0.02981) |

CAAR (−40,+40) | −0.0664 | −15.58 | 0.000 | (−0.07488; −0.05791) |

Variable | Median | Achieved Confidence | Confidence Interval | p-Value | |
---|---|---|---|---|---|

Lower | Upper | ||||

CAAR (−5,+5) | −0.02808 | 93.46% | −0.03816 | 0.00194 | 0.027 |

95.00% | −0.03819 | 0.00206 | |||

98.83% | −0.03852 | 0.00346 | |||

CAAR (−20,+20) | −0.03683 | 94.04% | −0.04879 | −0.02584 | 0.000 |

95.00% | −0.0488 | −0.02558 | |||

97.25% | −0.04883 | −0.02437 | |||

CAAR (−40,+40) | −0.07515 | 92.46% | −0.08821 | −0.06133 | 0.000 |

95.00% | −0.08841 | −0.06047 | |||

95.45% | −0.08847 | −0.06024 |

Variable | Median | p-Value | Achieved Confidence | Confidence Interval | |
---|---|---|---|---|---|

Lower | Upper | ||||

CAAR (−5,+5) | −0.0178 | 0.029 | 95.5% | −0.0347 | −0.0015 |

CAAR (−20,+20) | −0.035 | 0.000 | 95.0% | −0.0414 | −0.0297 |

CAAR (−40,+40) | −0.0677 | 0.000 | 95.0% | −0.0787 | −0.0572 |

E(−5,+5) | N | Mean | StDev | SE Mean | t-Value | DF | p-Value |

CAARs nonperishable | 11 | 0.0201 | 0.0185 | 0.0056 | 6.42 | 19 | 0.000 |

CAARs perishable | 11 | −0.0344 | 0.0211 | 0.0064 | |||

E(−20,+20) | N | Mean | StDev | SE Mean | t-Value | DF | p-Value |

CAARs nonperishable | 41 | −0.0029 | 0.0189 | 0.003 | 9.42 | 75 | 0.000 |

CAARs perishable | 41 | −0.0482 | 0.0243 | 0.0038 | |||

E(−40,+40) | N | Mean | StDev | SE Mean | t-Value | DF | p-Value |

CAARs nonperishable | 81 | 0.0315 | 0.0245 | 0.0027 | 20.17 | 109 | 0.000 |

CAARs perishable | 81 | −0.1056 | 0.0561 | 0.0062 |

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**MDPI and ACS Style**

Feria-Domínguez, J.M.; Paneque, P.; de la Piedra, F. Are the Financial Markets Sensitive to Hydrological Risk? Evidence from the Bovespa. *Water* **2020**, *12*, 3011.
https://doi.org/10.3390/w12113011

**AMA Style**

Feria-Domínguez JM, Paneque P, de la Piedra F. Are the Financial Markets Sensitive to Hydrological Risk? Evidence from the Bovespa. *Water*. 2020; 12(11):3011.
https://doi.org/10.3390/w12113011

**Chicago/Turabian Style**

Feria-Domínguez, José Manuel, Pilar Paneque, and Fanny de la Piedra. 2020. "Are the Financial Markets Sensitive to Hydrological Risk? Evidence from the Bovespa" *Water* 12, no. 11: 3011.
https://doi.org/10.3390/w12113011