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Natural Disasters and Municipal Bonds

Author

Listed:
  • Jun Kyung Auh
  • Jaewon Choi
  • Tatyana Deryugina
  • Tim Park

Abstract

Climate change is increasing the frequency of natural disasters, which could make municipal bonds a riskier asset class. We study the effects of natural disasters on municipal bond returns, exploiting the repeat sales approach to overcome the challenge that municipal bonds trade extremely infrequently. We find substantial price effects that materialize gradually: returns of uninsured bonds fall slowly in the weeks following a disaster, by 0.31% on average, translating into investor losses of almost $10 billion. Source of bond revenue, bond insurance, disaster severity, federal disaster aid, and local financial conditions all affect the magnitude of the price effects.

Suggested Citation

  • Jun Kyung Auh & Jaewon Choi & Tatyana Deryugina & Tim Park, 2022. "Natural Disasters and Municipal Bonds," NBER Working Papers 30280, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30280
    Note: AP EEE PE
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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