Natural disasters and risk aversion

Michael Bourdeau-Brien and Lawrence Kryzanowski

Journal of Economic Behavior & Organization, 2020, vol. 177, issue C, 818-835

Abstract: The havoc brought by extreme weather events triggers well-documented adverse effects on human health, communities’ resources and economic development. In this paper, we focus on the consequences of disasters on financial markets and infer the impact of major catastrophes on the risk-taking behavior of investors from U.S. municipal bond transactions. The findings strongly support the conjecture that natural disasters cause a statistically and economically significant increase in risk aversion at the local level. Although the change in investors’ behavior appears to be temporary, this increase in risk aversion may dampen the stimulus effect of disaster financial assistance programs, slow the recovery phase and augment the perceived value of risk management programs and infrastructures.

Keywords: Risk aversion; Natural disaster; Municipal bond; Heterogeneous investor behavior; Spatial investment; Time-varying risk-taking behavior (search for similar items in EconPapers)
JEL-codes: D8 G1 G4 Q5 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:177:y:2020:i:c:p:818-835

DOI: 10.1016/j.jebo.2020.07.007

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