Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/281206 
Year of Publication: 
2023
Series/Report no.: 
CFR Working Paper No. 23-08
Publisher: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Abstract: 
We examine if extreme weather exposure impacts firms' cost of equity. Motivated by a consumption-based asset pricing model with heterogeneous agents, we reveal the existence of an extreme weather risk premium in the cross-section of stock returns. In the period from 1995 to 2019, domestic U.S. stocks with the most negative sensitivity to thunderstorm losses earned excess returns of 6.5% p.a. over those with the most positive sensitivity. This premium can neither be explained by risk factors from standard asset pricing models nor by firm characteristics. Our results reveal a novel link between climate risk and firm value.
Subjects: 
Extreme Weather Risk
Climate Risk
Cost of Equity
Empirical Asset Pricing
JEL: 
C12
G01
G11
G12
G17
Document Type: 
Working Paper

Files in This Item:
File
Size
721.21 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.