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Climate change risks, weather uncertainty, and stock returns: evidence from major European markets

Author

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  • Chiang, Thomas C.

Abstract

This study investigates the influence of physical risk, transition risk, extreme weather, and weather uncertainty on major European stock markets. Using the generalized error distribution (GED) − GARCH- model and monthly data, the analysis finds evidence that variations in climate-related risks adversely affect stock returns. Specifically, extreme weather conditions observed in recent daily data have pronounced negative effects. Further analysis of monthly weather volatility, captured through the maximum-minimum daily spreads, reinforces the finding that harmful impacts on stock returns are more significant during the summer - season. Robustness tests based on daily data confirm the stability of most parameters, with one notable exception: transition risk exhibits a positive short-run effect due to momentum and sentiment. In contrast, monthly estimates reflect a negative long-run relationship consistent with risk pricing. These findings highlight the importance of data frequency in climate risk pricing and underscore the role of behavioral and uncertainty channels in financial markets.

Suggested Citation

  • Chiang, Thomas C., 2026. "Climate change risks, weather uncertainty, and stock returns: evidence from major European markets," The North American Journal of Economics and Finance, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:ecofin:v:85:y:2026:i:c:s1062940826000562
    DOI: 10.1016/j.najef.2026.102634
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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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