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Panic Selling When Disaster Strikes: Evidence in the Bond and Stock Markets

Author

Listed:
  • Thanh D. Huynh

    (Department of Banking and Finance, Monash Business School, Monash University, Victoria 3145, Australia)

  • Ying Xia

    (Department of Banking and Finance, Monash Business School, Monash University, Victoria 3145, Australia)

Abstract

This study uses disaggregated establishment-level data to identify a firm’s exposure to physical climate risk and examines investors’ reaction to natural disasters in both the U.S. corporate bond and stock markets. We find that, when a firm is exposed to disasters, investors overreact by depressing the current bond and stock prices, causing future returns to be higher. However, firms with a strong environmental profile experience lower selling pressure on their bonds and stocks, although their fundamentals weakened following disasters. The evidence suggests that corporate investment in improving environmental profiles pays off when climate change risk is materialized.

Suggested Citation

  • Thanh D. Huynh & Ying Xia, 2023. "Panic Selling When Disaster Strikes: Evidence in the Bond and Stock Markets," Management Science, INFORMS, vol. 69(12), pages 7448-7467, December.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:12:p:7448-7467
    DOI: 10.1287/mnsc.2021.4018
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    Cited by:

    1. Ma, Yong & Zhou, Mingtao & Li, Shuaibing, 2024. "Weathering market swings: Does climate risk matter for agricultural commodity price predictability?," Journal of Commodity Markets, Elsevier, vol. 36(C).
    2. Mario Schuster & Julian Krüger & Rainer Lueg, 2025. "Physical climate risk: Stock price reactions to the historically most extreme European and United States heat waves since 1979," PLOS ONE, Public Library of Science, vol. 20(1), pages 1-21, January.
    3. Wu, Fenglin & Shi, Yongdong & Xiong, Xiong & Li, Yanshuang & Dong, Zibing, 2024. "Benefiting from the frightened herd: Dynamic asset allocation amid panic sentiment," Economics Letters, Elsevier, vol. 245(C).
    4. Lasse Voß & Henning Cordes & Rainer Lueg, 2025. "The impact of environmental sustainability on willingness to invest in startups: A survey among private investors," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(2), pages 2672-2695, April.
    5. Sujuan Han & Mei Zhou, 2025. "Assessing the impact of climate change on entrepreneurship: short-term and long-term effects," Palgrave Communications, Palgrave Macmillan, vol. 12(1), pages 1-8, December.

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