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Sea Level Rise Exposure and Municipal Bond Yields

Author

Listed:
  • Paul Goldsmith-Pinkham
  • Matthew T. Gustafson
  • Ryan C. Lewis
  • Michael Schwert

Abstract

Municipal bond markets begin pricing sea level rise (SLR) exposure risk in 2013, coinciding with upward revisions to worst-case SLR projections and accompanying uncertainty around these projections. The effect is larger for long-maturity bonds and is not solely driven by near-term flood risk. We use a structural model of credit risk to quantify the implied economic impact and distinguish the effects of underlying asset values and uncertainty. The SLR exposure premium exhibits a different trend from house prices and is unaffected by house price controls. Taken together, our results highlight the importance of climate uncertainty in driving municipal bond prices.

Suggested Citation

  • Paul Goldsmith-Pinkham & Matthew T. Gustafson & Ryan C. Lewis & Michael Schwert, 2022. "Sea Level Rise Exposure and Municipal Bond Yields," NBER Working Papers 30660, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30660
    Note: AP CF EEE
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    Cited by:

    1. Pramendra Singh Tank & Sanjay Kumar Jain & Balagopal Gopalakrishnan, 2023. "Do firms respond to commitments on climate change? Impact of COP21 on investment intensity," IIMA Working Papers WP 2023-08-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    2. Johannes Stroebel & Jeffrey Wurgler, 2021. "What Do You Think About Climate Finance?," NBER Working Papers 29136, National Bureau of Economic Research, Inc.
    3. Bellocca, Gian Pietro Enzo & Alessi, Lucia & Poncela Blanco, Maria Pilar & Ruiz Ortega, Esther, 2023. "Effects of extreme temperature on the European equity market," DES - Working Papers. Statistics and Econometrics. WS 37973, Universidad Carlos III de Madrid. Departamento de Estadística.
    4. Mete Feridun & Hasan Güngör, 2020. "Climate-Related Prudential Risks in the Banking Sector: A Review of the Emerging Regulatory and Supervisory Practices," Sustainability, MDPI, vol. 12(13), pages 1-20, July.
    5. Lu, Runjing & Ye, Zihan, 2023. "Roe v. Rates: Reproductive Healthcare and Public Financing Costs," SocArXiv 7t5jz, Center for Open Science.
    6. Amine Ouazad & Matthew E. Kahn, 2023. "Mortgage Securitization Dynamics in the Aftermath of Natural Disasters: A Reply," Papers 2305.07179, arXiv.org.
    7. Cheng, Ruijie & Gupta, Bhavya & Rajan, Ramkishen S., 2023. "Do green financial policies offset the climate transition risk penalty imposed on long-term sovereign bond yields?," Research in International Business and Finance, Elsevier, vol. 65(C).

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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