Climate Change, Analyst Forecasts, and Market Behavior

62 Pages Posted: 24 Mar 2021

See all articles by Carina Cuculiza

Carina Cuculiza

Marquette University

Alok Kumar

University of Miami - Miami Herbert Business School

Wei Xin

University of Warwick, Warwick Business School

Chendi Zhang

University of Exeter Business School

Date Written: February 18, 2021

Abstract

This study examines whether sell-side equity analysts help the market assimilate information contained in global climate change. Using a new measure of firm sensitivity to climate change, we show that analysts located in states where firms exhibit greater sensitivity to abnormal temperature changes issue relatively less optimistic and more accurate forecasts in periods following large temperature increases. These effects are stronger for firms that are more sensitive to temperature changes. High temperature sensitivity firms also have lower consensus forecasts and higher earnings surprises, which generate higher stock market reaction following earnings announcements. Collectively, the evidence suggests that certain sell-side equity analysts incorporate news about climate change in their earnings forecasts and, consequently, earnings information is incorporated into prices quicker.

Keywords: climate change, temperature sensitivity, sell-side analysts, forecast accuracy, market reaction

JEL Classification: G29, G40

Suggested Citation

Cuculiza, Carina and Kumar, Alok and Xin, Wei and Zhang, Chendi, Climate Change, Analyst Forecasts, and Market Behavior (February 18, 2021). Available at SSRN: https://ssrn.com/abstract=3781157 or http://dx.doi.org/10.2139/ssrn.3781157

Carina Cuculiza

Marquette University ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Alok Kumar (Contact Author)

University of Miami - Miami Herbert Business School ( email )

512B Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Wei Xin

University of Warwick, Warwick Business School ( email )

West Midlands, CV4 7AL
United Kingdom

Chendi Zhang

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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