Stock returns and weather: The case of European listed energy firms

Jean-Louis Bertrand and Miia Chabot

Finance, 2020, vol. 41, issue 3, 51-92

Abstract: The influence of weather on stock markets has mainly been studied in the framework of behavioural finance. Using a weather-extended CAPM applied to European energy firms, we show that weather-related disclosures have little influence on returns, and highlight a significant market inefficiency due to a lag effect of weather. We find that the error between expected and observed returns decreases on average by 20% when using weather-extended CAPM compared to the traditional CAPM. As climate variability increases, these results should encourage analysts to consider the impact of weather on the stock returns of the 70% of companies exposed to the weather.

Keywords: weather extended CAPM; discretionary disclosures; weather risks; stock return guidance (search for similar items in EconPapers)
Date: 2020
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