Climate Vulnerability and Stock Price Crash Risk Worldwide

Using a global dataset, we document that market-level climate vulnerability is positively associated with an individual firm's stock price crash risk. We establish causality by using both an instrumental variable analysis and a 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 the decreased breadth of institutional ownership. Our overall findings indicate that climate vulnerability has adverse stock market consequences though a prominent destabilizing effect.