Does the Salience of Risk Affect Large, Risky Asset Prices?
62 Pages Posted: 15 Jun 2019 Last revised: 1 Jul 2020
Date Written: May 25, 2020
This paper documents that when a southern California home gets designated to a wildfire risk zone, its price drops by 11% relative to homes just outside the designation boundary. Whereas the risk designation is discontinuous, the underlying risk is continuous — suggesting the price effect is due to greater risk salience rather than greater risk. Moreover, after a nearby fire, transaction prices of homes with a view of the burn scar drop by 5% relative to the prices of otherwise similar homes — an effect significant only for the first year post-fire and too large to be explained by visual disamenities alone.
Keywords: risk salience, asset prices, natural disasters, wildfire, real estate, repeat sales
JEL Classification: D83, G1, G14, G18, Q54, R30
Suggested Citation: Suggested Citation