So I'm Jawad Addoum, I'm an assistant professor of finance in the Dyson School of the Cornell SC Johnson College of Business, and I primarily conduct research in the areas of portfolio choice and empirical asset pricing.
Broadly speaking, the big question that I'm after in my portfolio choice research is how households allocate their financial portfolios across different asset classes, such as stocks and bonds, and why such a large proportion of households don't invest anything in the stock market.
My second main line of research is asset pricing. A lot of my work in both areas leverages geography and looks at how investors' geographic locations influence their portfolio decisions, and then how these decisions feed into prices and generate geographic patterns and stock returns.
In a new line of research that I'm working on, instead of looking at investors' locations, I'm focusing on firms' locations or their geographic footprints.
We study how extreme temperature events affect establishment-level sales and productivity growth in the United States, and the work is really motivated by the scientific evidence supporting climate change, and, in particular, evidence of increases in both mean temperatures and extreme weather events, such as heatwaves.
Now, in terms of data, what we did is match a sample of really granular climate data that document daily temperatures across over 480,000 grids covering the continental US with sales and productivity measures for over 165,000 establishments where business is conducted, and what we found was that for the average US establishment, there's actually no evidence that abnormal exposure to extreme temperatures affects sales or productivity...so essentially, we documented a non-result.
Now, it's really quite rare to publish a non-result, especially in a top journal, but despite not finding an effect, we think that our study is important for at least a few reasons.
First, we think this non-result is an important fact in and of itself--it was not previously known, and we're the first to establish it. But second, we think that the fact really sort of prompted us to think about why we were finding the zero effect on average.
We might find that some industries are hurt by extreme temperatures while others actually benefit, and these bi-directional effects might offset or average out to zero, but the effects would still be important for stakeholders in each particular industry, and this bi-directional impact of extreme temperatures is exactly what we end up finding in our working paper.
So, for example, in the summer months, we find that extreme heat leads to a big drop in profitability among construction firms-- the heat seems to hurt their labor productivity because the work is conducted outdoors and it's really tough to work outdoors when it's extremely hot outside.
In contrast, we find that extreme heat is actually good news for electric utilities in the summer, and the idea here is that regulating indoor temperatures requires more electricity when it's very hot outside and so we see electric utilities experience a jump in profits when summer temperatures are extremely hot.
Overall, in the paper, we go through and examine the seasonal sensitivity of earnings for 59 different industries, and we find evidence that extreme temperatures are actually important for over 40 percent of these industries.
Our work could help financial market participants better understand swings in firm profitability. I think analysts and investors might be able to use our results to sharpen their forecasts before earnings announcements.
Politicians and policymakers are a group that could benefit in terms of understanding where and when we might expect the effects of climate change to show up in the economy, and in turn, this could help them decide where they want to deploy resources in terms of mitigating potential impacts of climate change.
And then finally, I think executives and decision-makers inside of companies might themselves find our industry results useful: for example, they might be interested in understanding how extreme temperatures affect their own or maybe even their competitors' profitability.
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Assistant Professor Jawad Addoum discusses his recent research on the effects of climate change on firms’ overhead costs, particularly looking at firm locations.