Sea Level Rise Exposure and Municipal Bond Yields

89 Pages Posted: 21 Nov 2022 Last revised: 14 Apr 2023

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

AQR Arbitrage, LLC

Multiple version iconThere are 2 versions of this paper

Date Written: November 2022

Abstract

Municipal bond markets begin pricing sea level rise (SLR) exposure risk in 2013, coinciding with upward revisions to worst-case SLR projections and accompanying uncertainty around these projections. The effect is larger for long-maturity bonds and is not solely driven by near-term flood risk. We use 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 from house prices and is unaffected by house price controls. Taken together, our results highlight the importance of climate uncertainty in driving municipal bond prices.

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Suggested Citation

Goldsmith-Pinkham, Paul S. and Gustafson, Matthew and Lewis, Ryan and Schwert, Michael, Sea Level Rise Exposure and Municipal Bond Yields (November 2022). NBER Working Paper No. w30660, Available at SSRN: https://ssrn.com/abstract=4282510

Paul S. Goldsmith-Pinkham (Contact Author)

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

University of Colorado, Boulder ( email )

Boulder, CO 80309-0419
United States

Michael Schwert

AQR Arbitrage, LLC ( email )

Two Greenwich Plaza
Greenwich, CT 06830
United States
2037423005 (Phone)

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