Investor Realization and Response to Climate Change: A Study of the Local Warming Effect on Investors at the Stockholm Stock Exchange

Abstract

Combining data from the Swedish financial market with abnormal temperatures in Stockholm from 2004 to 2019, we study the causal impact of temperature shocks on investor behavior. More specifically, we first examine whether abnormal temperatures affect investors’ attention to climate change as proxied by Google Search Volume Index. Then, we study the stock performance of carbon-intensive firms in relation to firms with low carbon emissions during abnormal temperatures. Finally, we identify investors as either retail investors, blockholders, or institutional investors and examine their trading behavior during abnormal temperatures. Combining data from several sources, we do not find evidence that temperature exposures significantly affect local investors’ attention, stock prices, nor trading activities. The thesis shed light on the national differentiation of investors’ realization and response to climate change, an important contribution to climate finance research.