Municipal Bond Trading, Information Relatedness, and Natural Disasters
Posted: 27 Sep 2017
Date Written: September 25, 2017
Abstract
We study municipal bond market activity before, during, and after natural disasters (tornados, wildfires, and hurricanes/tropical storms). Using a sample of municipal bond trades from 2010 to 2013, we find that natural disasters influence municipal bond trading. Specifically, we show that spreads are lower on both tornado and wildfire event days and during following five trading days than during the preceding five trading days. While we do not document a relation between hurricane events and spreads, we show that spreads fall during the five days following the hurricane compared to the five trading days before the event. Generally, we document an increase in dollar volume in the five trading days following all three types of natural disasters. We also determine that linkages exist between the bonds affected by natural disasters and related bonds.
Keywords: municipal bonds; natural disasters
JEL Classification: G20
Suggested Citation: Suggested Citation