"Climate vulnerability and market volatility: Evidence from European firms"

Abstract

"This study examines the association between country-level climate vulnerability and firm-level stock return volatility in Europe. Using panel data on 490 listed firms across 17 European countries from 2013 to 2022, we find that firms located in more climate-vulnerable countries exhibit significantly higher market volatility. The results are robust across alternative measures, fixed-effects specifications, and endogeneity checks. We further show that this relationship is amplified for financially constrained firms when constraints are measured using the Kaplan-Zingales index. Overall, the findings suggest that climate vulnerability primarily manifests as heightened market uncertainty and that financial frictions play a key role in transmitting macro-level climate risk to firm-level market volatility. © 2026 The Author(s)."