Global Disaster Risk Matters

Jian Chen (), Jiaquan Yao (), Qunzi Zhang () and Xiaoneng Zhu ()
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Jian Chen: Department of Finance, School of Economics, Xiamen University, Xiamen 361005, China
Jiaquan Yao: School of Management, Jinan University, Guangzhou 510632, China
Qunzi Zhang: School of Economics, Shandong University, Jinan 250100, China
Xiaoneng Zhu: Shanghai University of Finance and Economics, and Shanghai Institute of International Finance and Economics, Shanghai 200433, China

Management Science, 2023, vol. 69, issue 1, 576-597

Abstract: This article examines the cross-country asset pricing implications of disaster risk concerns. We construct a new disaster risk index, relying on six news-implied rare disaster proxies of Manela and Moreira (2017) , and show that this index is a powerful predictor for stock returns and other asset returns in international markets both in and out of sample. By further disentangling a global common component from our rare disaster index, we find evidence supporting theories that emphasize globally shared disaster risk as the important driving force of asset price fluctuations. Moreover, we conduct a return decomposition analysis and find that the global disaster risk drives stock returns primarily through the discount rate channel.

Keywords: rare disaster; international stock markets; global disaster; discount rate channel; partial least square (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:1:p:576-597

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