Shelter from the Storm: Which Safe Asset for Climate Disasters?

Abstract

Hurricanes give rise to flight-to-safety episodes during which High Tech stocks consistently behave differently from stocks in other industries. We isolate a safety premium of 3.75\% which peaks at 16% annualized for periods of 20 days after landfall. The safety premium is greater than the short term interest rate and thus greater than any safety premium embedded in government bonds. It has strengthened since the Global Financial Crisis. The flight-to-safety is not associated with a flight-to-liquidity episode, nor with changing risk aversion, but is a flight-to-quality. Accounting for higher moments of abnormal returns turns decisive for identifying safe assets.

Keywords: Climate change, climate finance, event study, extreme weather events, flight-to-safety, flight-to-quality, hurricanes, safe assets, safety premium

JEL Classification: G14, G17, Q54