Climate risk exposure and the cross-section of Chinese stock returns

Yaojie Zhang, Mengxi He, Cunfei Liao and Yudong Wang

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: This paper examines the role of climate risk exposure in the cross-sectional pricing of individual stocks in China. We find a premium of low climate risk exposure: stocks with low climate risk exposure significantly outperform those with high climate risk exposure by 0.83% to 0.90% per month in the future, on a risk-adjusted basis. Results of Fama-MacBeth regressions show that the premium of low climate risk exposure remains after controlling for well-known pricing factors. Moreover, a range of alternative settings confirms that the premium is extremely robust. Finally, climate risk exposure is a combination of pricing factors such as profitability and investment, which provides potential explanations for our results. Our study documents the importance of climate risk in cross-sectional pricing in the Chinese stock market.

Keywords: Climate risk; Cross-section of stock returns; Chinese stock market; Return predictability; Fama-MacBeth regressions (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003598

DOI: 10.1016/j.frl.2023.103987

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