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An inconvenient cost: The effects of climate change on municipal bonds

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  • Painter, Marcus

Abstract

Counties more likely to be affected by climate change pay more in underwriting fees and initial yields to issue long-term municipal bonds compared to counties unlikely to be affected by climate change. This difference disappears when comparing short-term municipal bonds, implying the market prices climate change risks for long-term securities only. Higher issuance costs for climate risk counties are driven by bonds with lower credit ratings. Investor attention is a driving factor, as the difference in issuance costs on bonds issued by climate and nonclimate affected counties increases after the release of the 2006 Stern Review on climate change.

Suggested Citation

  • Painter, Marcus, 2020. "An inconvenient cost: The effects of climate change on municipal bonds," Journal of Financial Economics, Elsevier, vol. 135(2), pages 468-482.
    • Handle: RePEc:eee:jfinec:v:135:y:2020:i:2:p:468-482
    DOI: 10.1016/j.jfineco.2019.06.006
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    More about this item

    Keywords

    Climate change; Municipal bonds; Sea level rise; Investor attention;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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