Do Fund Managers Misestimate Climatic Disaster Risk

Shashwat Alok, Nitin Kumar, Russell Wermers () and Harrison Hong

The Review of Financial Studies, 2020, vol. 33, issue 3, 1146-1183

Abstract: We examine whether professional money managers overreact to large climatic disasters. We find that managers within a major disaster region underweight disaster zone stocks to a much greater degree than distant managers and that this aversion to disaster zone stocks is related to a salience bias that decreases over time and distance from the disaster, rather than to superior information possessed by close managers. This overreaction can be costly to fund investors for some especially salient disasters like hurricanes and tornadoes: a long-short strategy that exploits the overreaction generates a significant DGTW-adjusted return over the following 2 years.

JEL-codes: G10 G11 G23 G40 G41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (68)

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