Municipal Bond Trading, Information Relatedness, and Natural Disasters

Posted: 27 Sep 2017

See all articles by Brittany Cole

Brittany Cole

Tennessee Technological University

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

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

Cole, Britany and Van Ness, Bonnie F. and Van Ness, Robert A., Municipal Bond Trading, Information Relatedness, and Natural Disasters (September 25, 2017). https://doi.org/10.3905/jot.2018.1.063 , Available at SSRN: https://ssrn.com/abstract=3042969 or http://dx.doi.org/10.2139/ssrn.3042969

Britany Cole

Tennessee Technological University ( email )

446 Freeze St.
Cookeville, TN 38505
United States

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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