Sea Level Rise Exposure and Municipal Bond Yields

53 Pages Posted: 11 Nov 2019 Last revised: 6 Oct 2021

See all articles by Paul S. Goldsmith-Pinkham

Paul S. Goldsmith-Pinkham

Yale School of Management

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Ryan Lewis

University of Colorado, Boulder

Michael Schwert

University of Pennsylvania - The Wharton School

Date Written: October 6, 2021

Abstract

Coinciding with upward revisions of sea level rise (SLR) projections, municipal bond markets begin pricing increased risk of SLR exposure in 2013. The effect is larger for long-maturity bonds and is not solely driven by near-term flood risk. We apply a structural model of credit risk to quantify the implied economic impact and distinguish the effects of underlying asset values and uncertainty. The SLR exposure premium exhibits a different trend than house prices and is unaffected by controlling for them, which suggests that uncertainty about SLR's future impact, rather than reduced current asset values, drives the effect on bond prices.

Keywords: climate change, sea level rise, asset prices, municipal bonds, credit risk

JEL Classification: G1, G12

Suggested Citation

Goldsmith-Pinkham, Paul S. and Gustafson, Matthew and Lewis, Ryan and Schwert, Michael, Sea Level Rise Exposure and Municipal Bond Yields (October 6, 2021). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3478364 or http://dx.doi.org/10.2139/ssrn.3478364

Paul S. Goldsmith-Pinkham

Yale School of Management ( email )

NY
United States

HOME PAGE: http://paulgp.github.io

Matthew Gustafson

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Ryan Lewis (Contact Author)

University of Colorado, Boulder ( email )

Boulder, CO 80309-0419
United States

Michael Schwert

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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