Volatile temperatures and their effects on equity returns and firm performance

Leonardo Bortolan, Atreya Dey and Luca Taschini

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We establish the financial materiality of temperature variability by demonstrating its impact on US firms and investors. A long-short strategy that sorts firms based on exposure earns a market-adjusted alpha of 39 basis points per month. This variability metric is related to aggregate decreases in firm profitability, with asymmetric effects across industries. These outcomes are driven by reductions in consumer demand and labor productivity coupled with changes in media and investor attention. The geographically scalable statistical framework provides a reference for assessing the quantitative effects of climate-related physical risks, offering a metric for improving the disclosure of material climate risks.

Keywords: corporate climate reporting; climate attention; temperature variability; stock returns; firm performance (search for similar items in EconPapers)
JEL-codes: C21 C23 G12 G32 Q54 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2024-12-06
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:128521

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