Does public attention to biodiversity matter to stock markets?

Biodiversity has become an important issue in recent years, attracting great public attention. Arguably, biodiversity can be treated as a risk factor that should be priced in stock markets. To examine this issue, this paper first constructs a biodiversity attention index (BAI) based on information provided by the Baidu search engine and then examines its impact on the returns of listed firms in China. Specifically, the BAI is added to a capital asset pricing model as an additional factor, and then the model is used to analyse individual stock returns. By summarising the results from a bottom-up perspective, we find that BAI can affect stock returns to a certain extent and the impacts are highly heterogeneous across sectors. The pricing power of the BAI increases over time, with a growing number of companies affected. Further investigation shows that younger, larger firms and firms with better financial or environmental performance tend to be less sensitive to the BAI. Overall, this study provides important evidence to understand biodiversity–finance linkages and further highlights the need to incorporate public attention towards environmental issues into financial practices.