Physical climate risk: Stock price reactions to the historically most extreme European and United States heat waves since 1979
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In: PLoS ONE, Vol. 20, No. 1 , e0318166, 24.01.2025.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Physical climate risk
T2 - Stock price reactions to the historically most extreme European and United States heat waves since 1979
AU - Schuster, Mario
AU - Krüger, Julian
AU - Lueg, Rainer
N1 - Publisher Copyright: © 2025 Schuster et al. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
PY - 2025/1/24
Y1 - 2025/1/24
N2 - Climate change has heightened the need to understand physical climate risks, such as the increasing frequency and severity of heat waves, for informed financial decision-making. This study investigates the financial implications of extreme heat waves on stock returns in Europe and the United States. Accordingly, the study combines meteorological and stock market data by integrating methodologies from both climate science and finance. The authors use meteorological data to ascertain the five strongest heat waves since 1979 in Europe and the United States, respectively, and event study analyses to capture their effects on stock prices across firms with varying levels of environmental performance. The findings reveal a marked increase in the frequency of heat waves in the 21st century, reflecting global warming trends, and that European heat waves generally have a higher intensity and longer duration than those in the United States. This study provides evidence that extreme heat waves reduce stock values in both regions, with portfolio declines of up to 3.1%. However, there are marked transnational differences in investor reactions. Stocks listed in the United States appear more affected by the most recent heat waves compared to those further in the past, whereas the effect on European stock prices is more closely tied to event intensity and duration. For the United States sample only, the analysis reveals a mitigating effect of high corporate environmental performance against heat risk. This study introduces an innovative interdisciplinary methodology, merging meteorological precision with financial analytics to provide deeper insights into climate-related risks.
AB - Climate change has heightened the need to understand physical climate risks, such as the increasing frequency and severity of heat waves, for informed financial decision-making. This study investigates the financial implications of extreme heat waves on stock returns in Europe and the United States. Accordingly, the study combines meteorological and stock market data by integrating methodologies from both climate science and finance. The authors use meteorological data to ascertain the five strongest heat waves since 1979 in Europe and the United States, respectively, and event study analyses to capture their effects on stock prices across firms with varying levels of environmental performance. The findings reveal a marked increase in the frequency of heat waves in the 21st century, reflecting global warming trends, and that European heat waves generally have a higher intensity and longer duration than those in the United States. This study provides evidence that extreme heat waves reduce stock values in both regions, with portfolio declines of up to 3.1%. However, there are marked transnational differences in investor reactions. Stocks listed in the United States appear more affected by the most recent heat waves compared to those further in the past, whereas the effect on European stock prices is more closely tied to event intensity and duration. For the United States sample only, the analysis reveals a mitigating effect of high corporate environmental performance against heat risk. This study introduces an innovative interdisciplinary methodology, merging meteorological precision with financial analytics to provide deeper insights into climate-related risks.
KW - Management studies
UR - http://www.scopus.com/inward/record.url?scp=85216424815&partnerID=8YFLogxK
U2 - 10.1371/journal.pone.0318166
DO - 10.1371/journal.pone.0318166
M3 - Journal articles
C2 - 39854606
AN - SCOPUS:85216424815
VL - 20
JO - PLoS ONE
JF - PLoS ONE
SN - 1932-6203
IS - 1
M1 - e0318166
ER -