Abstract

Climate scientists project a rise in both average temperatures and the frequency of temperature extremes. We study how extreme temperatures affect companies’ earnings across different industries and whether sell-side analysts understand these relationships. We combine granular daily data on temperatures across the continental U.S. with locations of public companies’ establishments and build a panel of quarterly firm-level temperature exposures. Extreme temperatures significantly impact earnings in over 40% of industries, with bi-directional effects that harm some industries while others benefit. Analysts and investors do not immediately react to observable intra-quarter temperature shocks, but earnings forecasts account for temperature effects by quarter-end in many, though not all, industries.