Natural Disasters and Municipal Bonds

52 Pages Posted: 30 Dec 2021 Last revised: 3 Oct 2022

See all articles by Jun Kyung Auh

Jun Kyung Auh

Yonsei University - School of Business

Jaewon Choi

Seoul National University - Department of Economics

Tatyana Deryugina

University of Illinois

Tim Park

The University of Texas at Austin

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2022

Abstract

Climate change is increasing the frequency of natural disasters, which could make municipal bonds a riskier asset class. We study the effects of natural disasters on municipal bond returns, exploiting the repeat sales approach to overcome the challenge that municipal bonds trade extremely infrequently. We find substantial price effects that materialize gradually: returns of uninsured bonds fall slowly in the weeks following a disaster, by 0.31% on average, translating into investor losses of almost $10 billion. Source of bond revenue, bond insurance, disaster severity, federal disaster aid, and local financial conditions all affect the magnitude of the price effects.

Keywords: Natural Disasters, Climate Change, Municipal Bonds, Municipal Financing, Repeat Sales

JEL Classification: G10, G14, Q54

Suggested Citation

Kyung Auh, Jun and Choi, Jaewon and Deryugina, Tatyana and Park, Tim, Natural Disasters and Municipal Bonds (July 1, 2022). Available at SSRN: https://ssrn.com/abstract=3996208 or http://dx.doi.org/10.2139/ssrn.3996208

Jun Kyung Auh

Yonsei University - School of Business ( email )

50 Yonsei-ro, Seodaemun-gu
Seoul, 120-749
Korea, Republic of (South Korea)

Jaewon Choi (Contact Author)

Seoul National University - Department of Economics ( email )

Korea, Republic of (South Korea)

Tatyana Deryugina

University of Illinois ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

HOME PAGE: http://deryugina.com

Tim Park

The University of Texas at Austin ( email )

Red McCombs School of Business
Austin, TX 78712
United States

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