Can municipal bonds hedge US state-level climate risks?

Onur Polat, Rangan Gupta, Oguzhan Cepni and Qiang Ji

Finance Research Letters, 2024, vol. 67, issue PB

Abstract: Using daily data on municipal bonds and equity returns from the 50 US states, we find barring extreme periods of financial, macroeconomic, and health crises, the underlying conditional correlation between these two assets is negative. When we capture the effect of climate risk quantiles on the entire conditional distribution of the underlying time-varying stock-bond correlation, we generally observe a negative impact at different levels of climate risks, although this could turn positive in the event of extreme climate disasters. In summary, the role of municipal bonds as a hedge against climate risks cannot be denied, carrying important implications for investors.

Keywords: Stocks and bonds returns; Time-varying conditional correlation; ADCC-GARCH; climate risks; QQ regressions; US states (search for similar items in EconPapers)
JEL-codes: C22 C32 G10 G12 Q54 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Can Municipal Bonds Hedge US State-Level Climate Risks? (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324009450

DOI: 10.1016/j.frl.2024.105915

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