Climate Vulnerability and Stock Price Crash Risk Worldwide

Using a global dataset, we document that market-level climate vulnerability is positively associated with stock price crash risk of individual firms. We establish causality by using an instrumental variable analysis and difference-in-differences analysis. Furthermore, we show that an increase in climate vulnerability is associated with several strong determinants of stock price crashes, including dampened firm fundamentals, more aggressive bad-news hoarding, lower dedicated institutional ownership, and decreased breadth of institutional ownership. Our overall findings indicate that climate vulnerability can have adverse stock market consequences though a prominent de-stabilizing effect