Pricing effects of extreme high temperature: Evidence from municipal corporate bonds in China

Climate change and the escalation of extreme weather events jeopardize every corner of the globe. This paper investigates the impact of extreme high temperatures on the spread of newly issued municipal corporate bonds (MCBs) in China, which serves as a crucial instrument for local governments to meet the financial demands. We find that relative to the reference temperature range of 16 degrees C-20 degrees C, the issuing spread of MCBs increases by 2.48 basis points for each extra day where the mean temperature surpasses 32 degrees C. The findings highlight the risk-increasing effects of extreme temperatures in financial markets.