Climate shocks, institutional investors, and the information content of stock prices

Ivan Blanco, Jose M. Martin-Flores and Alvaro Remesal

Journal of Corporate Finance, 2024, vol. 86, issue C

Abstract: We analyze how the materialization of physical climate risk in the institutional investors’ portfolios spurs a propagation effect on the information content of stock prices. Institutional investors with a relatively high portfolio exposure to natural disasters divest from disaster-hit stocks, decrease the trading intensity in non-hit stocks, and their trading decisions predict low medium-term returns. At the firm-level, institutional investors propagate the effects of disasters to non-hit stocks through reduced incorporation of firm-specific information, especially when the stocks represent a low portfolio weight. Combined, these results suggest that natural disasters trigger a rational reallocation of information-processing resources by institutional investors.

Keywords: Institutional ownership; Price informativeness; Natural disasters; Investment (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:86:y:2024:i:c:s0929119924000294

DOI: 10.1016/j.jcorpfin.2024.102567

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