Abnormal weather and loan bias: Evidence from China's FinTech credit market

Abstract

Abnormal weather can negatively affect people's cognitive performance, which can lead to some decision biases. To accurately quantify the effect of abnormal weather, we use abnormal temperature data and loan data from Renrendai, a Chinese FinTech credit market. We estimate the impact of abnormal temperature on borrowers' behavior and decision-making. Results show that abnormal temperatures change the amount of loans. Several robustness checks are consistent with baseline results. We find that abnormal temperatures have various effects on different populations. Loan experience is an important factor. Individuals who have taken out multiple loans are more slightly affected by abnormal temperatures. In addition, we find that abnormal temperatures have some cumulative effects. Bias due to abnormal weather may have some effect on financial markets. Therefore, financial markets are also exposed to the risks associated with climate change. Quantifying the negative effect of abnormal weather should consider its effect on financial markets.