Flight to Climatic Safety: Local Natural Disasters and Global Portfolio Flows
47 Pages Posted: 5 Jul 2023
There are 3 versions of this paper
Flight to Climatic Safety: Local Natural Disasters and Global Portfolio Flows
Flight to Climatic Safety: Local Natural Disasters and Global Portfolio Flows
Flight to Climatic Safety: Local Natural Disasters and Global Portfolio Flows
Date Written: July 2, 2023
Abstract
Using data from a broad panel of countries at a weekly frequency, we find that local natural disasters have significant effects on global portfolio flows. First, when disasters strike, international investors reduce their net flows to equity mutual funds exposed to affected countries. This only happens when disasters occur in the emerging economies that are more exposed to climate risk. Second, natural disasters lead investors to reduce their portfolio flows into unaffected, high-climate-risk countries in the same region as well. Third, disasters in high-climate-risk emerging economies spur investment flows into advanced countries that are relatively safer from a climate risk standpoint. Overall, this suggests that natural disasters trigger an updating of beliefs about global climate threats that are propagated via a new channel: international investors search for climatic safety.
Keywords: climate change, natural disasters, capital flows, flight to safety, emerging markets
JEL Classification: C32, C33, E44, F3, Q54
Suggested Citation: Suggested Citation