Improvements in hurricane forecasting could have “economically significant effects” on financial markets, a paper published by the Federal Reserve finds.

Mathias Kruttli and co-authors investigate option and equity market responses to uncertainty surrounding extreme US weather events and the subsequent economic impact. The authors sample a period from 2007–17.

They find equity options of firms exposed to hurricane events exhibit an increase in volatility of 5–10% in the aftermath of the event