Does Wildfire Smoke Move Financial Markets? The Impact of Wildfire Smoke Across Cities on Equity Returns and Volatility

KARTHICK MOHAN KUMAR, Jesse Burkhardt, Shantanu Jathar, Colorado State University

     Abstract Number: 569
     Working Group: Aerosol Exposure

Abstract
Wildfire smoke increasingly contributes to poor air quality in the United States (US) and adversely affects public health, visibility, and ecosystems. Previous work has shown that poor air quality is linked to lower stock returns in financial markets. In this study, we examine how smoke fine particulate matter (PM2.5) affects the yields and volatility of major indices on US stock exchanges. To do this, we used smoke data from the NOAA Hazard Mapping System (HMS), PM2.5 data from the EPA Air Quality System (AQS), and financial data from leading US stock market indices. An independent two-sample t-test was employed to compare yields for stock market indices between smoke and non-smoke days affecting the top 10 US metropolitan statistical areas (MSAs). The analysis covers the fire season months (June through November) from 2010 to 2024. We find that on high-smoke days, New York City (NYC) and some other MSAs (e.g., Chicago) experienced higher returns, contrary to the negative or neutral returns observed in some other MSAs. In contrast, lower volatility was observed on high-smoke days, which might be due to reduced trading activity during smoke days in NYC. We propose the use of machine learning models to find complex, non-linear relationships between the presence of smoke, smoke concentrations, returns, and volatility. Findings from this analysis will reveal how smoke aerosols affect the market behavior, pointing to possible links between environmental conditions and investor responses.