Physical climate risk, fund holdings, and idiosyncratic risk

Lei Zhang and Shanghong Sun

International Review of Financial Analysis, 2025, vol. 103, issue C

Abstract: This study explores how physical climate risk affects idiosyncratic risk and analyzes the moderating role of firms' fund holding structure in this process. This study covers the period from 2001 to 2023, constructing a panel dataset with monthly temperature frequency based on Chinese A-share listed companies. We calculate an idiosyncratic volatility index using the residuals of capital asset pricing, three-factor, and five-factor models. The results reveal that temperature changes are significantly positively correlated with firm-specific risk. Even under nonextreme weather conditions, high temperatures can significantly increase idiosyncratic risk, particularly in the manufacturing industry. We also find that firms with a higher proportion of fund holdings have more obvious idiosyncratic risks under temperature fluctuations. This study provides a new perspective for understanding the relationship between physical climate risk and firm risk, enriching climate finance research from the perspective of firms' holding structure.

Keywords: Physical climate risk; Idiosyncratic volatility; Fund holdings; Manufacturing industry (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521925002704
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:103:y:2025:i:c:s1057521925002704

DOI: 10.1016/j.irfa.2025.104183

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().