Failure to Share Natural Disaster Risk

Tuomas Tomunen

The Review of Financial Studies, 2026, vol. 39, issue 3, 661-701

Abstract: I test whether asset prices reflect risk exposures of financial intermediaries in a setting well-suited to tackling concerns about omitted risk factors. I analyze catastrophe bonds whose cash flows are linked to natural disasters and find that 71% of the security-level variation in expected returns can be explained by a theoretically motivated measure of intermediaries’ marginal utility. Assuming natural disasters are independent of aggregate wealth, this result is inconsistent with any alternative explanation based on unobserved macroeconomic risks. In addition, the aggregate premium decreases and becomes less sensitive to the occurrence of disasters when intermediaries’ access to outside capital improves.

Keywords: G12; G22 (search for similar items in EconPapers)
Date: 2026
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