Graduation Year

2025

Date of Submission

4-2025

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Peter Kelly

Abstract

Wildfires in California specifically have become more frequent in recent years, raising questions about their economic consequences. This paper investigates the financial impact of wildfire destruction on firm-level stock returns and prices which has a main focus on variation across industries and individual fire events. I wanted to conduct a thesis that avoided being overly repetitive or mundane, so I differentiated it in three different ways: (1) I measure firm performance using daily log stock returns relative to market movements; (2) I disaggregate the analysis across three of the biggest California wildfires in recent history the Camp Fire, Palisades Fire, and Tubbs Fire to account for event-specific effects; and (3) I incorporate both sector-level fixed effects and interaction terms to explore impacts across industries. Using firm-level stock data matched to wildfire events and market controls, I run a series of regressions to test the relationship between fire severity and firm returns.

The results were shocking, showing that while most fires show no statistically significant relationship between fire size and return, the Palisades Fire exhibits a clear and significant negative effect, with more extensive damage associated with lower firm performance. These findings underscore the need for firms, investors, and policymakers to recognize that the financial impact of wildfires may be event-specific and sector-sensitive. If companies find significance in this study, it may alter their contributions to climate change and have more protective measures in fire hazardous areas. This paper contributes to the growing literature on climate-related financial risk by offering new empirical insights into how localized environmental disasters influence asset prices.

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This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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