Climate risks and market efficiency

Climate risks and market efficiency

Climate science finds that the trend towards higher global temperatures exacerbates the risks of droughts. We investigate whether the prices of food stocks efficiently discount these risks. Using data from thirty-one countries with publicly-traded food companies, we rank these countries each year ba...

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Bibliographic Details
Main Authors: HONG, Harrison, LI, Frank Weikai, XU, Jiangmin
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2019
Subjects:
Climate Risks
Climate Change
Stock Market
Efficiency
Return Predictability
Environmental Sciences
Finance
Finance and Financial Management
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/5966
https://ink.library.smu.edu.sg/context/lkcsb_research/article/6965/viewcontent/Climate_Risks_Market_Efficiency_2017_pp.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:Climate science finds that the trend towards higher global temperatures exacerbates the risks of droughts. We investigate whether the prices of food stocks efficiently discount these risks. Using data from thirty-one countries with publicly-traded food companies, we rank these countries each year based on their long-term trends toward droughts using the Palmer Drought Severity Index. A poor trend ranking for a country forecasts relatively poor profit growth for food companies in that country. It also forecasts relatively poor food stock returns in that country. This return predictability is consistent with food stock prices underreacting to climate change risks.

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