Volatile temperatures and their effects on equity returns and firm performance

Bortolan, Leonardo, Dey, Atreya and Taschini, Luca ORCID: 0000-0001-5355-1736 (2024) Volatile temperatures and their effects on equity returns and firm performance. Grantham Research Institute on Climate Change and the Environment Working Papers (417). Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, London, UK.

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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.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.lse.ac.uk/granthaminstitute/publicatio...
Additional Information:	© 2024 The Author(s)
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions
JEL classification:	C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C21 - Cross-Sectional Models; Spatial Models; Treatment Effect Models C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C23 - Models with Panel Data G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Date Deposited:	23 Jun 2025 11:27
Last Modified:	23 Jun 2025 23:15
URI:	http://eprints.lse.ac.uk/id/eprint/128521

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