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Abnormal temperature and the cross-section of stock returns in China

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  • Zhang, Yaojie
  • Song, Bingheng
  • He, Mengxi
  • Wang, Yudong

Abstract

We investigate the role of abnormal temperature in the cross-sectional returns of the Chinese stock market. Empirical results document a premium of low abnormal temperature exposure: stocks with low abnormal temperature exposure significantly outperform those with high exposure by more than 0.70% per month in the future, on a risk-adjusted basis. The negative relationship between abnormal temperature exposure and stock returns remains significant after controlling for well-known pricing factors. Finally, we provide plausible explanations for the premium: abnormal temperature can prompt investors to revise their global warming beliefs, which are closely associated with the premium, affect their stock trading behavior, and damage the earnings of climate-unfriendly companies.

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  • Zhang, Yaojie & Song, Bingheng & He, Mengxi & Wang, Yudong, 2024. "Abnormal temperature and the cross-section of stock returns in China," International Review of Financial Analysis, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finana:v:94:y:2024:i:c:s1057521924002060
    DOI: 10.1016/j.irfa.2024.103274
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    Cited by:

    1. Zhang, Yaojie & Zhang, Yuxuan & Ren, Xinrui & Jin, Meichen, 2024. "Geopolitical risk exposure and stock returns: Evidence from China," Finance Research Letters, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Abnormal temperature; Cross-section of stock returns; Chinese stock market; Investor belief; Trading behavior;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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