Warming Trends: Analysing the Impact of Temperature anomaly on the risk and return of the US stock market.

Abstract

In this study, I examine how temperature anomalies affect the stock returns and volatility of US public companies, particularly those in heat-sensitive industries. This study employs a panel data fixed effect regression to analyze climate data alongside financial data from around 18000 firms located and traded in the US continental in order to examine the relationship between temperature anomalies and US stock market dynamics. To determine whether this can be attributed to the effect of temperature on firms’ infrastructure or to the sentimental effect of temperature on investors’ sentiments. I found no evidence that temperature affects US firms’ stocks return. However, I find some evidence to suggest that it may affect US stocks’ standard deviation.