Temperature Shocks and Industry Earnings News
93 Pages Posted: 25 Nov 2019 Last revised: 9 Jan 2023
Date Written: January 5, 2023
Climate scientists project a rise in both average temperatures and the frequency of temperature extremes. We study how extreme temperatures affect companies' earnings 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, but earnings forecasts account for temperature effects by quarter-end in many, though not all, industries.
Keywords: climate shocks, temperature extremes, earnings predictability, sell-side analysts, stock returns
JEL Classification: G12, G14, Q54
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