If a stock is extra sensitive to weather patterns, you can expect it to deliver lower returns to investors.
SSRN · March 18, 2026 · 6433312
The Takeaway
Basic economic theory suggests that investors should be paid a 'premium' for taking on extra risks like weather volatility, but the market shows the opposite. Because of psychological biases, investors consistently overvalue weather-sensitive companies, meaning those who take on this risk actually end up with worse performance than those who hold 'boring' stocks.
From the abstract
We construct six monthly abnormal weather indicators by employing physical weather data of temperature, humidity, wind speed, precipitation, sunshine hours and sky coverage in China. We compute the abnormal weather betas to proxy for abnormal weather risks and investigate the pricing effects of these risks in the Chinese stock market. We find a low abnormal weather beta premium in the cross-section, i.e., stocks with high betas to changes in the abnormal weather index significantly underperform