Climate risk and household stock market participation

This study examines how climate risk shapes household portfolio choice, addressing a gap in the household-finance literature that largely overlooks environmental factors. Prior work has emphasized household characteristics and socioeconomic conditions, but the role of physical climate risk remains underexplored. Using five waves (2011–2019) of the China Household Finance Survey (CHFS) matched to county-level meteorological records, we estimate a household-level panel fixed-effects model and implement an instrumental-variables strategy to identify causal effects. We document that extreme heat conditions significantly curtail participation in equity markets and shrink the fraction of household assets allocated to stocks. Our mechanism analysis indicates that climate risk operates by amplifying background risks—specifically labor-income and health risks—and by tightening household credit constraints. These findings illuminate the micro-level channels through which climate risk affects household financial behavior, highlight regressive effects on disadvantaged households, and underscore the need for climate-resilient financial policy.