Global Disaster Risk Matters

Management Science

64 Pages Posted: 5 Oct 2017 Last revised: 8 Feb 2023

See all articles by Jian Chen

Jian Chen

Xiamen University - School of Economics

Jiaquan Yao

Jinan University - Management School

Qunzi Zhang

Shandong University

Xiaoneng Zhu

Shanghai University of Finance and Economics

Date Written: September 1, 2021

Abstract

This article examines the cross-country asset pricing implications of disaster risk concerns. We
construct a new disaster risk index relying on six news-implied rare disaster proxies of Manela and Moreira (2017) and show that this index is a powerful predictor for stock returns and other asset returns in international markets both in-and out-of-sample. By further disentangling a global common component from our rare disaster index, we find evidence supporting theories that emphasize globally shared disaster risk as the important driving force of asset price fluctuations. Moreover, we conduct a return decomposition analysis and find that the global disaster risk drives stock returns primarily through the discount rate channel.

Keywords: Rare Disaster, International Stock Markets, Global Disaster, Discount Rate Channel, Partial Least Square

JEL Classification: C22, C53, G1

Suggested Citation

Chen, Jian and Yao, Jiaquan and Zhang, Qunzi and Zhu, Xiaoneng, Global Disaster Risk Matters (September 1, 2021). Management Science, Available at SSRN: https://ssrn.com/abstract=3047652 or http://dx.doi.org/10.2139/ssrn.3047652

Jian Chen (Contact Author)

Xiamen University - School of Economics ( email )

422 Siming Nan Road
Xiamen, Fujian 361005
China

Jiaquan Yao

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

HOME PAGE: http://www.jiaquanyao.com

Qunzi Zhang

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, SD Shandong 250100
China

HOME PAGE: http://www.econ.sdu.edu.cn/info/1257/42629.htm

Xiaoneng Zhu

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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