An Inconvenient Cost: The Effects of Climate Change on Municipal Bonds

47 Pages Posted: 9 May 2018 Last revised: 24 Sep 2018

See all articles by Marcus Painter

Marcus Painter

Saint Louis University - Department of Finance

Date Written: September 17, 2018

Abstract

Counties more likely to be affected by climate change pay more in underwriting fees and initial yields to issue long-term municipal bonds compared to counties unlikely to be affected by climate change. This difference disappears when comparing short-term municipal bonds, implying the market prices climate change risks for long-term securities only. Higher issuance costs for climate risk counties are driven by bonds with lower credit ratings. Investor attention is a driving factor, as the difference in issuance costs on bonds issued by climate and non-climate affected counties increases after the release of the 2006 Stern Review on climate change.

Keywords: Climate Change, Fixed Income, Sea Level Rise, Investor Attention, Credit Ratings, Asset Prices

JEL Classification: G14, G24, H74, Q54

Suggested Citation

Painter, Marcus, An Inconvenient Cost: The Effects of Climate Change on Municipal Bonds (September 17, 2018). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3167379 or http://dx.doi.org/10.2139/ssrn.3167379

Marcus Painter (Contact Author)

Saint Louis University - Department of Finance ( email )

Saint Louis, MO
United States

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