Natural Disasters and Municipal Bonds

Jun Kyung Auh, Jaewon Choi, Tatyana Deryugina and Tim Park

No 30280, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G10 G14 Q54 (search for similar items in EconPapers)
Date: 2022-07
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