Attention to Global Warming

Abstract

We find that people revise their beliefs about climate change upward when experiencing warmer than usual temperatures in their area. Using international data, we show that attention to climate change, as proxied by Google search volume, increases when the local temperature is abnormally high. In financial markets, stocks of carbon-intensive firms underperform firms with low carbon emissions in abnormally warm weather. Retail investors (not institutional investors) sell carbon-intensive firms in such weather, and return patterns are unlikely to be driven by changes in fundamentals. Our study sheds light on peoples’ collective beliefs and actions about global warming.

Pricing Poseidon: Extreme Weather Uncertainty and Firm Return Dynamics

“…Hong, Li, and Xu (2019) show that drought indices are predictive of food company stock returns, indicating that investors are inattentive to droughts' impacts on food companies. Choi, Gao, and Jiang (2018) find evidence of a positive relationship between investors' beliefs about climate change and warmer-than-usual temperatures. Addoum, Ng, and Ortiz-Bobea (2019) examine whether firm earnings are affected by high temperatures and how analysts and investors react to temperature shocks.…”

Hedging Climate Change News

“…Our work contributes to a burgeoning literature that studies how climate change affects asset markets, and how asset markets in turn may affect the dynamics of climate change. Andersson et al (2016) propose a passive investment strategy tilted to lowcarbon stock as a hedge against climate risk, while Choi et al (2018) explore how investors update their information about climate risk. Hong et al (2018) investigate whether international stock markets efficiently price drought risk, and Kumar et al (2018) explore whether fund managers misestimate the risk of climate disasters.…”

Investor Rewards to Climate Responsibility: Evidence from the 2016 Climate Policy Shock

“…Second, the paper contributes to the fast-growing literature exploring the interconnections between climate change and financial markets. Recent studies in this area include Addoum, Ng, and Ortiz-Bobea (2019a,b), Andersson, Bolton, and Samama (2016), Baldauf, Garlappi, and Yannelis (2019), Bernstein, Gustafson, and Lewis (2019), Choi, Gao, and Jiang (2019), Hong, Li, and Xu (2019), and Ilhan, Sautner, and Vilkov (2019). Our paper complements this new strand of research by showing that investor rewards to climate-responsible firms strongly depend on the regulatory environment on climate change expected in the long run.…”