Does the Salience of Risk Affect Large, Risky Asset Prices?

62 Pages Posted: 15 Jun 2019 Last revised: 1 Jul 2020

See all articles by Cloé Garnache

Cloé Garnache

University of Oslo, Department of Economics

Date Written: May 25, 2020

Abstract

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

Garnache, Cloe, Does the Salience of Risk Affect Large, Risky Asset Prices? (May 25, 2020). Available at SSRN: https://ssrn.com/abstract=3398404 or http://dx.doi.org/10.2139/ssrn.3398404

Cloe Garnache (Contact Author)

University of Oslo, Department of Economics ( email )

Postboks 1095
Oslo, 0317
Norway

HOME PAGE: http://https://folk.uio.no/cloega/

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