Climate Shocks, Institutional Investors, and the Information Content of Stock Prices

70 Pages Posted: 6 Apr 2021 Last revised: 21 Mar 2024

Date Written: April 5, 2021

Abstract

We analyze how the materialization of physical climate risk in the institutional investors' portfolios spurs a propagation effect on the information content of stock prices. Institutional investors with a relatively high portfolio exposure to disasters divest from disaster-hit stocks, decrease the trading intensity in non-hit stocks, and their trading decisions predict low medium-term returns. At the firm-level, institutional investors propagate the effects of the disaster to non-hit stocks through reduced incorporation of firm-specific information, especially when the stocks represent a low portfolio weight. Combined, these results suggest that natural disasters trigger a rational reallocation of information-processing resources by institutional investors.

Keywords: Institutional Ownership, Price Informativeness, Natural Disasters, Investment

JEL Classification: G14, G20, G30, G32

Suggested Citation

Blanco, Iván and Martin-Flores, Jose-Maria and Remesal, Alvaro, Climate Shocks, Institutional Investors, and the Information Content of Stock Prices (April 5, 2021). Available at SSRN: https://ssrn.com/abstract=3819895 or http://dx.doi.org/10.2139/ssrn.3819895

Iván Blanco (Contact Author)

CUNEF University ( email )

C/ Leonardo Prieto Castro, 2
Madrid, Madrid 28040
Spain

HOME PAGE: http://cunef.edu/

Jose-Maria Martin-Flores

CUNEF Universidad ( email )

Calle de Pirineos, 55
Madrid, Madrid 28040
Spain

Alvaro Remesal

CUNEF Universidad ( email )

Calle de los Pirineos 55
Madrid, 28040
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
215
Abstract Views
1,148
Rank
264,687
PlumX Metrics