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Temperature shocks and industry earnings news

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  • Addoum, Jawad M.
  • Ng, David T.
  • Ortiz-Bobea, Ariel

Abstract

Climate scientists project rising average temperatures and increasing frequency of temperature extremes. We study how extreme temperatures affect corporate profitability across different industries and whether sell-side analysts understand these relationships. We combine granular daily data on temperatures across the continental U.S. with locations of public companies’ establishments and build a panel of quarterly firm-level temperature exposures. Extreme temperatures significantly impact earnings in over 40% of industries, with bi-directional effects that harm some industries while others benefit. Analysts and investors do not immediately react to observable intra-quarter temperature shocks, though earnings forecasts account for temperature effects by quarter-end in many industries.

Suggested Citation

  • Addoum, Jawad M. & Ng, David T. & Ortiz-Bobea, Ariel, 2023. "Temperature shocks and industry earnings news," Journal of Financial Economics, Elsevier, vol. 150(1), pages 1-45.
    • Handle: RePEc:eee:jfinec:v:150:y:2023:i:1:p:1-45
    DOI: 10.1016/j.jfineco.2023.07.002
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    Cited by:

    1. Aguilar-Gomez, Sandra & Gutierrez, Emilio & Heres, David & Jaume, David & Tobal, Martin, 2024. "Thermal stress and financial distress: Extreme temperatures and firms’ loan defaults in Mexico," Journal of Development Economics, Elsevier, vol. 168(C).
    2. Yuan, Zhengrong & Ding, Hai & Yu, Qiuzuo, 2024. "High temperature, bargaining power and within-firm wage inequality: Evidence from China," Economic Modelling, Elsevier, vol. 135(C).
    3. Chen, Fanglin & Zhang, Jie & Chen, Zhongfei, 2024. "Assessment of the effects of extreme temperature on economic activity," Ecological Economics, Elsevier, vol. 222(C).
    4. El Ghoul, Sadok & Fu, Zhengwei & Guedhami, Omrane & Kim, Yongwon, 2024. "Do insiders profit from public environmental information? Evidence from insider trading," Global Finance Journal, Elsevier, vol. 60(C).
    5. Derek Lemoine & Sarah Kapnick, 2024. "Financial markets value skillful forecasts of seasonal climate," Nature Communications, Nature, vol. 15(1), pages 1-10, December.
    6. Zhang, Xin & Chen, Fanglin & Chen, Zhongfei & Zhang, Jie, 2024. "Temperature exposure and health inequality," Journal of Asian Economics, Elsevier, vol. 92(C).
    7. 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).
    8. Bellocca, Gian Pietro Enzo & Poncela Blanco, Maria Pilar, 2024. "Extreme temperatures and the profitability of large European firms," DES - Working Papers. Statistics and Econometrics. WS 44217, Universidad Carlos III de Madrid. Departamento de Estadística.
    9. Gegner, Martin, 2023. "Die Akzeptanz gesetzlicher Initiativen zur Energiewende: Das Beispiel "Gesetz zum Neustart der Digitalisierung der Energiewende"," Discussion Papers, Research Group Digital Mobility and Social Differentiation SP III 2023-603, WZB Berlin Social Science Center.
    10. Duan, Tinghua & Li, Frank Weikai, 2024. "Climate change concerns and mortgage lending," Journal of Empirical Finance, Elsevier, vol. 75(C).
    11. Zhang, Yunhan & Li, Yan & Zhao, Wanli & Ji, Qiang, 2024. "Climate risk performance and returns integration of Chinese listed energy companies," Energy Economics, Elsevier, vol. 129(C).

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    More about this item

    Keywords

    Climate shocks; Temperature extremes; Earnings predictability; Sell-side analysts; Stock returns;
    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
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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