Abnormal temperature and the cross-section of stock returns in China

Yaojie Zhang, Bingheng Song, Mengxi He and Yudong Wang

International Review of Financial Analysis, 2024, vol. 94, issue C

Abstract: We investigate the role of abnormal temperature in the cross-sectional returns of the Chinese stock market. Empirical results document a premium of low abnormal temperature exposure: stocks with low abnormal temperature exposure significantly outperform those with high exposure by more than 0.70% per month in the future, on a risk-adjusted basis. The negative relationship between abnormal temperature exposure and stock returns remains significant after controlling for well-known pricing factors. Finally, we provide plausible explanations for the premium: abnormal temperature can prompt investors to revise their global warming beliefs, which are closely associated with the premium, affect their stock trading behavior, and damage the earnings of climate-unfriendly companies.

Keywords: Abnormal temperature; Cross-section of stock returns; Chinese stock market; Investor belief; Trading behavior (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:94:y:2024:i:c:s1057521924002060

DOI: 10.1016/j.irfa.2024.103274

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