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

98 Pages Posted: 19 Feb 2020 Last revised: 8 Sep 2020

See all articles by Matthew Lanfear

Matthew Lanfear

EDHEC Business School

Abraham Lioui

EDHEC Business School

Mark Siebert

EDHEC Business School

Date Written: January 23, 2020

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

Suggested Citation

Lanfear, Matthew and Lioui, Abraham and Siebert, Mark, Shelter from the Storm: Which Safe Asset for Climate Disasters? (January 23, 2020). Available at SSRN: https://ssrn.com/abstract=3511079 or http://dx.doi.org/10.2139/ssrn.3511079

Matthew Lanfear (Contact Author)

EDHEC Business School ( email )

France

Abraham Lioui

EDHEC Business School ( email )

France

Mark Siebert

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

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