This study investigates the relationship between extreme climate concerns and equity premiums in the Chinese stock market. The authors construct an Extreme Climate Concern (ECC) indicator based on extreme climate news coverage. They find that ECC significantly and negatively predicts subsequent stock market returns, outperforming alternative confidence indicators and economic predictors both in-sample and out-of-sample. The predictive power of ECC is enhanced after the Paris Agreement, and its accuracy is higher during periods of low climate concern. The ECC also provides substantial economic gains to investors, withstanding robustness tests.

Yongan Xu, Chao Liang