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Does climate risk influence analyst forecast accuracy?

Author

Listed:
  • Kim, Incheol
  • Lee, Suin
  • Ryou, Jiwoo

Abstract

We examine how climate risk influences analyst forecast accuracy proxied by forecast error and dispersion. Using country-level climate risk estimated with time trends in droughts, we find that analyst forecasts are less accurate for firms in drought-prone countries. This effect of climate risk is stronger when climate risks are denoted in earnings forecasts, and when firms’ home countries have greater reliance on hydroelectric sources in electricity generation, more important agricultural and food industries, and active stances concerning climate change. Overall, our findings suggest noteworthy implications of climate risk on the financial markets via analyst forecast accuracy.

Suggested Citation

  • Kim, Incheol & Lee, Suin & Ryou, Jiwoo, 2024. "Does climate risk influence analyst forecast accuracy?," Journal of Financial Stability, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finsta:v:75:y:2024:i:c:s157230892400130x
    DOI: 10.1016/j.jfs.2024.101345
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    More about this item

    Keywords

    Climate risk; Climate change; Earnings forecast; Earnings volatility;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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