Does climate risk influence analyst forecast accuracy?

We examine how climate risk influences analyst forecast accuracy proxied by forecast error and dispersion. Using country-level climate risk estimated with time trends in droughts, we find that analyst forecasts are less accurate for firms in drought-prone countries. This effect of climate risk is st...

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Bibliographic Details
Published in:Journal of financial stability 2024-12, Vol.75, p.101345, Article 101345
Main Authors: Kim, Incheol, Lee, Suin, Ryou, Jiwoo
Format: Article
Language:English
Subjects:
Climate change
Climate risk
Earnings forecast
Earnings volatility
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Summary:We examine how climate risk influences analyst forecast accuracy proxied by forecast error and dispersion. Using country-level climate risk estimated with time trends in droughts, we find that analyst forecasts are less accurate for firms in drought-prone countries. This effect of climate risk is stronger when climate risks are denoted in earnings forecasts, and when firms’ home countries have greater reliance on hydroelectric sources in electricity generation, more important agricultural and food industries, and active stances concerning climate change. Overall, our findings suggest noteworthy implications of climate risk on the financial markets via analyst forecast accuracy.
ISSN:1572-3089
DOI:10.1016/j.jfs.2024.101345