Temperature Sensitivity, Mispricing, and Predictable Returns

• 成果类型: Article; Early Access
• 署名作者: Cuculiza, Carina; Kumar, Alok; Xin, Wei; Zhang, Chendi
• 署名单位: University of Kansas; University of Miami; University of Exeter; University of Exeter
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.00972
• 发表日期: 2025
• 关键词: temperature sensitivity; Return predictability; Mispricing; market underreaction; institutional investors; sell-side equity analysts

摘要

We examine the relation between temperature changes and firm performance using a novel time-varying measure of firm-level temperature sensitivity. We find that firms with higher temperature sensitivity have lower future profitability and riskier corporate policies. These firms are also overpriced and earn lower average future returns as market participants are slow to correct the mispricing. Nonlocal institutional investors allocate higher portfolio weights to firms with high temperature sensitivity, and sell-side equity analyst forecasts are less accurate for these firms. Together, these results suggest that financial markets underreact to information about firm-level temperature sensitivity, and this generates predictable patterns in returns. A trading strategy that exploits this mispricing generates an annualized risk-adjusted return of more than 4% during the 1968-2020 period.