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Will temperature change reduce stock returns? Evidence from China

Author

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  • Yan, Yumeng
  • Xiong, Xiong
  • Li, Shuo
  • Lu, Lei

Abstract

The continuous rise in temperature, on the one hand, will increase the frequency of extreme weather events and disrupt a company's normal production order; on the other hand, it will cause changes in environmental protection policies, leading to increased production costs and even the suspension of business for rectification. Therefore, the continuous rise in temperature is a risk factor that listed companies cannot ignore. This paper uses temperature data at the locations of listed companies in China from 2007 to 2019, as well as stock price data and financial data of listed companies, to study the impact of the continuous rise in temperature on listed companies and the determinants and mechanism of the impact. The empirical results show that a continuous rise in the temperature where a listed company is located will cause a significant negative shock to the listed company, and when the company's size is smaller, the book-to-market ratio is higher, and the consequences of this negative shock are more obvious.

Suggested Citation

  • Yan, Yumeng & Xiong, Xiong & Li, Shuo & Lu, Lei, 2022. "Will temperature change reduce stock returns? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finana:v:81:y:2022:i:c:s1057521922000801
    DOI: 10.1016/j.irfa.2022.102112
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    Cited by:

    1. Shivam Swarup & Gyaneshwar Singh Kushwaha, 2022. "Effects of Temperature Rise on Clean Energy-Based Capital Market Investments: Neural Network-Based Granger Causality Analysis," Sustainability, MDPI, vol. 14(18), pages 1-12, September.
    2. Boungou, Whelsy & Urom, Christian, 2023. "Climate change-related risks and bank stock returns," Economics Letters, Elsevier, vol. 224(C).

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    More about this item

    Keywords

    Temperature; Negative shock; Size; Book-to-market ratio; Performance;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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