Journal article
Climate change risks, weather uncertainty, and stock returns: evidence from major European markets
The North American journal of economics and finance, Forthcoming
Apr 2026
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Abstract
•This study examines the effects of physical risk (PRt), transition risk (TRt), extreme weather, and weather variance on European stock markets.•Changes in physical risk (PRt) and transition risk (TRt) have negative effects on stock returns using monthly data. The coefficients of TRt show a positive impact on daily data.•Evidence shows that the extreme values of PRt and TRt present significantly negative effects on stock returns.•Evidence indicates that the weather variances of PRt and PRt derived from daily observations in the current month exhibit significantly negative effects on stock returns.•Extreme weather and weather variance of PRt and TRt vary from season to season and impacts are more profound in the summer season.
This study investigates the influence of physical risk, transition risk, extreme weather, and weather uncertainty on major European stock markets. Using the generalized error distribution (GED) − GARCH- model and monthly data, the analysis finds evidence that variations in climate-related risks adversely affect stock returns. Specifically, extreme weather conditions observed in recent daily data have pronounced negative effects. Further analysis of monthly weather volatility, captured through the maximum-minimum daily spreads, reinforces the finding that armful impacts on stock returns are more significant during the summer mon. season. Robustness tests based on daily data confirm the stability of most parameters, with one notable exception: transition risk exhibits a positive short-run effect due to momentum and sentiment. In contrast, monthly estimates reflect a negative long-run relationship consistent with risk pricing. These findings highlight the importance of data frequency in climate risk pricing and underscore the role of behavioral and uncertainty channels in financial markets.
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Details
- Title
- Climate change risks, weather uncertainty, and stock returns: evidence from major European markets
- Creators
- Thomas C. Chiang (Corresponding Author) - Drexel University
- Publication Details
- The North American journal of economics and finance, Forthcoming
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- [Retired Faculty]; Finance
- Other Identifier
- 991022175176304721