Sea Level Rise Exposure and Municipal Bond Yields
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.
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Copy CitationPaul Goldsmith-Pinkham, Matthew T. Gustafson, Ryan C. Lewis, and Michael Schwert, "Sea Level Rise Exposure and Municipal Bond Yields," NBER Working Paper 30660 (2022), https://doi.org/10.3386/w30660.
Published Versions
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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