We investigate whether the Paris Agreement represents a turning point in investors’ perception of climate risks by studying the reaction of 47 stock markets to extreme climate events. The sample covers the period 1995–2022 and includes announcements of record greenhouse gas concentrations, the warmest years and ice shelf collapses. Before the Paris Agreement, markets display significant positive abnormal returns to these announcements, particularly in Europe. After the Agreement, however, markets exhibit significant negative differential reactions across all events, with stronger effects in Europe. These findings suggest that the Paris Agreement marks a turning point in how financial markets assess climate-related risks. Investors shift from interpreting climate records as neutral or even positive signals to recognizing them as sources of risk. Our results highlight the role of international climate policy in aligning financial markets with the challenges of climate change. • Companies face rising environmental costs amid global warming. • Paris Agreement represents a historic milestone to combat climate change. • We study market reaction to extreme events related to climate change. • Investors' perception shifts post-Paris Agreement, impacting markets. • Post-Paris, European markets react more negatively to climate risks.
Serrano et al. (Sun,) studied this question.