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Pricing Climate Risks: Evidence from Wildfires and Municipal Bonds

Author

Listed:
  • Woongchan Jeon

    (ETH Zurich)

  • Lint Barrage

    (ETH Zurich)

  • Kieran James Walsh

    (ETH Zurich)

Abstract

How are public finances affected by climate-driven wildfire risk changes? Using high resolution meteorological forecasts, land use data, and US municipal bond spreads, we find that municipalities facing greater future wildfire exposure already incur higher borrowing costs: A one standard deviation increase in future wildfire risk is associated with a 7 (8) basis point rise in primary (secondary) market spreads - over 15% of the sample mean. Impacts appear larger in areas with higher minority populations and greater reliance on local revenue. Our study contributes to the broader literature by introducing a new approach to evaluating the capitalization of evolving physical climate risks.

Suggested Citation

  • Woongchan Jeon & Lint Barrage & Kieran James Walsh, 2026. "Pricing Climate Risks: Evidence from Wildfires and Municipal Bonds," CER-ETH Economics working paper series 26/405, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:26-405
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    File URL: https://ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/wp-26-405.pdf
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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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