We examine if extreme weather exposure impacts firms’ cost of equity. Motivated by a consumption-based asset pricing model with heterogeneous agents, we reveal the existence of an extreme weather risk premium in the cross-section of stock returns. In the period from 1995 to 2019, domestic U.S....

We propose a simulation-based strategy to estimate and empirically assess a class of asset pricing models that account for rare but severe consumption contractions that can extend over multiple periods. Our approach expands the scope of prevalent calibration studies and tackles the inherent...