Climate Change and Investors' Behaviour: Assessing a New Type of Systematic Risk

ABSTRACT This study explores how temperature anomalies, a novel form of systematic risk, affect financial markets, expanding the traditional understanding of market‐wide risks. While climate change is becoming an important consideration, the extent to which temperature anomalies disrupt economic activities and influence stock returns is urgently needed to assess. Using data from 479 Thai companies (2010–2023), we apply linear and nonlinear autoregressive distributed lag (ARDL) models to examine the impact of temperature anomalies and investor sentiment on stock returns. Our findings reveal that (1) temperature anomalies significantly affect short‐term stock returns, especially when prioritising sustainability and environmental, social, and governance (ESG) factors; (2) public awareness, measured by Google Search Volume Index (GSVI), has a complex, nonlinear impact on the stock market; (3) temperature anomalies act like traditional risk measures, influencing stock returns similarly to market volatility. The study highlights the growing importance of climate change in financial decision‐making and offers insights into investor reactions to climate risks and economic sentiment. It emphasises the need to consider short‐term market reactions to climate‐related news and suggests that temperature anomalies could be viewed as a systematic risk in financial markets.