Stock market returns and climate risk in the U.S

Yiyang Chen, Rogemar Mamon, Fabio Spagnolo and Nicola Spagnolo

Journal of Multinational Financial Management, 2025, vol. 77, issue C

Abstract: Using a data set for all companies forming the S&P 500 index, we investigate the stock price responses to acute physical risks, chronic physical risks, and transition risks. Our findings reveal that certain sectors are more vulnerable to climate risks, whereas others appear to be relatively unaffected. In addition, our results show that listed firms with poor environmental performance scores are more exposed to climate risk, as indicated by their stock returns being negatively affected, compared to firms with higher environmental performance scores. This suggests that improving environmental performance may help companies to better cope with climate risks and improve their financial performances. Our analysis provides evidence that the short-term systematic risk is more vulnerable to the climate risk events, whereas effects on long-term systematic risk do not appear to be statistically significant. These findings indicate that investors and firms should pay a particular attention to short-term systematic risk when considering the potential impact of climate risk on stock market performances.

Keywords: Hidden Markov models; Event study; Climate change risk; Systematic risk (search for similar items in EconPapers)
JEL-codes: D24 O13 O47 Q40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:77:y:2025:i:c:s1042444x24000525

DOI: 10.1016/j.mulfin.2024.100887

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