Attention to Global Warming

How does the weather influence investment decisions?

The article Attention to Global Warming explores the relationship between abnormal local temperatures, the level of public attention to global warming, and its subsequent effects on financial markets.

Darwin Choi, Zhenyu Gao, and Wenxi Jiang provide insights into how short-term weather anomalies can influence long-term beliefs and behaviours related to climate change by analysing Google search volume and stock market data across 74 cities worldwide:

• People are more likely to search for information about global warming on Google during months with abnormally high temperatures in their area.
• Stocks of carbon-intensive firms underperform compared to firms with low carbon emissions during periods of abnormally warm weather.
• The observed behaviour change is primarily attributed to retail investors, who tend to sell stocks of carbon-intensive firms during warmer than usual weather.
• The observed stock price movements are not driven by fundamental changes in the firms' value but rather by investors' reactions to abnormal temperatures.

Local weather anomalies can significantly increase public attention to climate change, with individual investors being more responsive to short-term climate-related cues than institutional ones.

The market's response to weather events is more about perception and beliefs regarding climate risk than about immediate financial impacts on the firms.

These findings highlight the need for policymakers to implement clear communication and education strategies to address misconceptions about climate change, which constitutes a much larger trend than local weather events.

Investment professionals might also consider the influence of climate-related perceptions and local weather anomalies on market dynamics when making investment decisions.