An Inconvenient Cost: The Effects of Climate Change on Municipal Bonds
47 Pages Posted: 9 May 2018 Last revised: 24 Sep 2018
Date Written: September 17, 2018
Counties more likely to be affected by climate change pay more in underwriting fees and initial yields to issue long-term municipal bonds compared to counties unlikely to be affected by climate change. This difference disappears when comparing short-term municipal bonds, implying the market prices climate change risks for long-term securities only. Higher issuance costs for climate risk counties are driven by bonds with lower credit ratings. Investor attention is a driving factor, as the difference in issuance costs on bonds issued by climate and non-climate affected counties increases after the release of the 2006 Stern Review on climate change.
Keywords: Climate Change, Fixed Income, Sea Level Rise, Investor Attention, Credit Ratings, Asset Prices
JEL Classification: G14, G24, H74, Q54
Suggested Citation: Suggested Citation