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Sea Level Rise Exposure and Municipal Bond Yields

Paul Goldsmith-Pinkham, Matthew T. Gustafson, Ryan C. Lewis and Michael Schwert

No 30660, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Municipal bond markets begin pricing sea level rise (SLR) exposure risk in 2013, coinciding with upward revisions to worst-case SLR projections and accompanying uncertainty around these projections. The effect is larger for long-maturity bonds and is not solely driven by near-term flood risk. We use a structural model of credit risk to quantify the implied economic impact and distinguish the effects of underlying asset values and uncertainty. The SLR exposure premium exhibits a different trend from house prices and is unaffected by house price controls. Taken together, our results highlight the importance of climate uncertainty in driving municipal bond prices.

JEL-codes: G1 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-env, nep-ifn and nep-ure
Note: AP CF EEE
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Citations: View citations in EconPapers (7)

Published as Paul Goldsmith-Pinkham & Matthew T Gustafson & Ryan C Lewis & Michael Schwert & Gregor Matvos, 2023. "Sea-Level Rise Exposure and Municipal Bond Yields," The Review of Financial Studies, vol 36(11), pages 4588-4635.

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