Climate change drives multiple effects on the stock market. The literature describes temperature shocks as a risk factor for companies and investors' portfolios. To date, however, few studies price temperature shock effects on economic sector. In addition, just recently scholars started adding asset-level information to financial modeling. Thus, we propose in this study to use a spatio-temporal model to create a temperature risk factor capturing the effects of global warming and check the existence of a risk premium for unanticipated temperature fluctuations. The temperature risk factor is defined as the difference between the expected and realized trend in temperature related to climate warming effects. The results provide evidence of mostly negative risk premium for temperature shocks for an array of economic sectors. The analysis also suggest that markets still do not price the risk of adverse temperature fluctuations in industry assets. The study should bring implications for regulators concerned in mitigating climate change and investors interested in optimizing portfolios.
Comissão Organizadora
Anderson Odias da Silva
Claudia Yoshinaga
Ricardo D. Brito
Felipe Saraiva Iachan
Vinicius Augusto Brunassi Silva
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