Climate Risk and American Depositary Receipts

Qi Zhang, Huijing Li and Chengbo Fu
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Qi Zhang: BSB - Burgundy School of Business (BSB) - ESC Dijon-Bourgogne, CEREN - Centre de Recherche sur les Entreprises - BSB - Burgundy School of Business (BSB) - ESC Dijon-Bourgogne

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Abstract: This research explores the relation between climate change exposure and excess returns of American Depositary Receipts (ADRs). The findings indicate a robust positive association between climate change exposure and excess returns for ADRs, suggesting that investors demand a risk premium for ADRs with higher climate-related risks. In contrast, this positive relationship is not observed for domestic U.S. stocks, where climate risk exposure does not significantly influence realized excess returns. The analysis delves into distinct dimensions of climate risk, demonstrating that the observed positive risk premium for ADRs is primarily driven by firms' exposure to climate-related opportunities. These results highlight the growing significance of climate risk in global markets and underscore the necessity of incorporating climate-related factors into investment decision-making processes.

Keywords: Climate risk; Climate risk premium; Excess returns; Domestic U.S. firms; ADR firms; Climate change exposure (search for similar items in EconPapers)
Date: 2025-11-01
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Published in Finance Research Letters, 2025, 85, ⟨10.1016/j.frl.2025.108144⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05797905

DOI: 10.1016/j.frl.2025.108144

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