Panic Selling When Disaster Strikes: Evidence in the Bond and Stock Markets

Published Online:https://doi.org/10.1287/mnsc.2021.4018

References

  • Addoum JM, Ng DT, Ortiz-Bobea A (2019) Temperature shocks and industry earnings news. Working paper, Cornell University, Ithaca, NY.Google Scholar
  • Addoum JM, Ng DT, Ortiz-Bobea A (2020) Temperature shocks and establishment sales. Rev. Financial Stud. 33(3):1331–1355.CrossrefGoogle Scholar
  • Albuquerque R, Koskinen Y, Zhang C (2019) Corporate social responsibility and firm risk: Theory and empirical evidence. Management Sci. 65(10):4451–4469.LinkGoogle Scholar
  • Alok S, Kumar N, Wermers R (2020) Do fund managers misestimate climatic disaster risk? Rev. Financial Stud. 33(3):1146–1183.CrossrefGoogle Scholar
  • Armour J, Mayer C, Polo A (2017) Regulatory sanctions and reputational damage in financial markets. J. Financial Quantitative Anal. 52(4):1429–1448.CrossrefGoogle Scholar
  • Bai J, Bali TG, Wen Q (2019) Common risk factors in the cross-section of corporate bond returns. J. Financial Econom. 131(3):619–642.CrossrefGoogle Scholar
  • Baker M, Bergstresser D, Serafeim G, Wurgler J (2018) Financing the response to climate change: The pricing and ownership of US green bonds. Working paper, Harvard Business School, Cambridge, MA.Google Scholar
  • Baldauf M, Garlappi L, Yannelis C (2020) Does climate change affect real estate prices? Only if you believe in it. Rev. Financial Stud. 33(3):1256–1295.CrossrefGoogle Scholar
  • Bali TG, Subrahmanyam A, Wen Q (2021) Long-term reversals in the corporate bond market. J. Financial Econom. 139(2):656–677.CrossrefGoogle Scholar
  • Bansal R, Ochoa M, Kiku D (2016) Climate change and growth risks. Working paper, Duke University, Durham, NC.Google Scholar
  • Bao J, Pan J, Wang J (2011) The illiquidity of corporate bonds. J. Finance 66(3):911–946.CrossrefGoogle Scholar
  • Barber BM, Morse A, Yasuda A (2021) Impact investing. J. Financial Econom. 139(1):162–185.CrossrefGoogle Scholar
  • Barnett M, Brock W, Hansen LP (2020) Pricing uncertainty induced by climate change. Rev. Financial Stud. 33(3):1024–1066.CrossrefGoogle Scholar
  • Barrot JN, Nanda R (2020) The employment effects of faster payment: Evidence from the federal quickpay reform. J. Finance 75(6):3139–3173.CrossrefGoogle Scholar
  • Barrot JN, Sauvagnat J (2016) Input specificity and the propagation of idiosyncratic shocks in production networks. Quart. J. Econom. 131(3):1543–1592.CrossrefGoogle Scholar
  • Ben-Rephael A, Carlin BI, Da Z, Israelsen RD (2021) Information consumption and asset pricing. J. Finance 76(1):357–394.CrossrefGoogle Scholar
  • Bernstein A, Gustafson MT, Lewis R (2019) Disaster on the horizon: The price effect of sea level rise. J. Financial Econom. 134(2):253–272.CrossrefGoogle Scholar
  • Bessembinder H, Kahle KM, Maxwell WF, Xu D (2008) Measuring abnormal bond performance. Rev. Financial Stud. 22(10):4219–4258.Google Scholar
  • BlackRock (2019) Getting physical: Assessing climate risks. A practitioner report conducted by BlackRock, https://www.blackrock.com/us/individual/insights/blackrock-investment-institute/physical-climate-risks.Google Scholar
  • Bolton P, Kacperczyk MT (2020) Carbon premium around the world. Working paper, Columbia University, New York.Google Scholar
  • Bolton P, Kacperczyk MT (2021) Do investors care about carbon risk? J. Financial Econom. Forthcoming.CrossrefGoogle Scholar
  • Bourveau T, Law KK (2021) Do disruptive life events affect how analysts assess risk? Evidence from deadly hurricanes. Accounting Rev. Forthcoming.CrossrefGoogle Scholar
  • Brown JR, Gustafson M, Ivanov I (2021) Weathering cash flow shocks. J. Finance Forthcoming.CrossrefGoogle Scholar
  • Burke M, Hsiang SM, Miguel E (2015) Global non-linear effect of temperature on economic production. Nature 527(7577):235–239.CrossrefGoogle Scholar
  • Campbell JY, Shiller RJ (1988a) The dividend-price ratio and expectations of future dividends and discount factors. Rev. Financial Stud. 1(3):195–228.CrossrefGoogle Scholar
  • Campbell JY, Shiller RJ (1988b) Stock prices, earnings, and expected dividends. J. Finance 43(3):661–676.CrossrefGoogle Scholar
  • Cao J, Titman S, Zhan X, Zhang WE (2020) ESG preference, institutional trading, and stock return patterns. Working paper, Chinese University of Hong Kong, Hong Kong.Google Scholar
  • Choi D, Gao Z, Jiang W (2020) Attention to global warming. Rev. Financial Stud. 33(3):1112–1145.CrossrefGoogle Scholar
  • Chowdhry B, Davies SW, Waters B (2019) Investing for impact. Rev. Financial Stud. 32(3):864–904.CrossrefGoogle Scholar
  • Coval J, Stafford E (2007) Asset fire sales (and purchases) in equity markets. J. Financial Econom. 86(2):479–512.CrossrefGoogle Scholar
  • De Bondt WF, Thaler R (1985) Does the stock market overreact? J. Finance 40(3):793–805.CrossrefGoogle Scholar
  • de Greiff K, Delis MD, Ongena S (2018) Being stranded on the carbon bubble? Climate policy risk and the pricing of bank loans. Working paper, University of Zurich, Zurich, Switzlerland.Google Scholar
  • Dell M, Jones BF, Olken BA (2014) What do we learn from the weather? The new climate-economy literature. J. Econom. Literature 52(3):40–98.Google Scholar
  • Dessaint O, Matray A (2017) Do managers overreact to salient risks? Evidence from hurricane strikes. J. Financial Econom. 126(1):97–121.CrossrefGoogle Scholar
  • Dick-Nielsen J (2009) Liquidity biases in TRACE. J. Fixed Income 19(1):43–55.CrossrefGoogle Scholar
  • Dick-Nielsen J (2014) How to clean enhanced TRACE data. Working paper, Copenhagen Business School, Copenhagen, The Netherlands.Google Scholar
  • Dick-Nielsen J, Feldhütter P, Lando D (2012) Corporate bond liquidity before and after the onset of the subprime crisis. J. Financial Econom. 103(3):471–492.CrossrefGoogle Scholar
  • Dietz S, Bowen A, Dixon C, Gradwell P (2016) “Climate value at risk” of global financial assets. Natural Climate Change 6(7):676–679.CrossrefGoogle Scholar
  • Dong R, Fisman R, Wang Y, Xu N (2021) Air pollution, affect, and forecasting bias: Evidence from Chinese financial analysts. J. Financial Econom. 139(3):971–984.CrossrefGoogle Scholar
  • Duan T, Li FW (2020) Climate change concerns and mortgage lending. Working paper, Singapore Management University, Singapore.Google Scholar
  • Dunn J, Fitzgibbons S, Pomorski L (2018) Assessing risk through environmental, social and governance exposures. J. Investment Management 16(1):4–17.Google Scholar
  • Emanuel K (2017) Assessing the present and future probability of Hurricane Harvey’s rainfall. Proc. National Acad. Sci. USA 114(48):12681–12684.CrossrefGoogle Scholar
  • Engle RF, Giglio S, Kelly BT, Lee H, Stroebel J (2020) Hedging climate change news. Rev. Financial Stud. 33(3):1184–1216.CrossrefGoogle Scholar
  • Faccio M, Hsu HC (2017) Politically connected private equity and employment. J. Finance 72(2):539–574.CrossrefGoogle Scholar
  • Fama EF, French KR (2015) A five-factor asset pricing model. J. Financial Econom. 116(1):1–22.CrossrefGoogle Scholar
  • Gebhardt WR, Hvidkjaer S, Swaminathan B (2005) The cross-section of expected corporate bond returns: Betas or characteristics? J. Financial Econom. 75(1):85–114.CrossrefGoogle Scholar
  • Gibson R, Krueger P (2018) The sustainability footprint of institutional investors. Working paper, University of Geneva, Geneva.Google Scholar
  • Giglio S, Maggiori M, Rao K, Stroebel J, Weber A (2021) Climate change and long-run discount rates: Evidence from real estate. Rev. Financial Stud. Forthcoming.Google Scholar
  • Goldsmith-Pinkham PS, Gustafson M, Lewis R, Schwert M (2020) Sea level rise and municipal bond yields. Working paper, Yale University, New Haven, CT.Google Scholar
  • Hartzmark SM, Sussman AB (2019) Do investors value sustainability? A natural experiment examining ranking and fund flows. J. Finance 74(6):2789–2837.CrossrefGoogle Scholar
  • Heider F, Ljungqvist A (2015) As certain as debt and taxes: Estimating the tax sensitivity of leverage from state tax changes. J. Financial Econom. 118(3):684–712.CrossrefGoogle Scholar
  • Hirshleifer D, Lim SS, Teoh SH (2011) Limited investor attention and stock market misreactions to accounting information. Rev. Asset Pricing Stud. 1(1):35–73.CrossrefGoogle Scholar
  • Hoepner AG, Oikonomou I, Sautner Z, Starks LT, Zhou X (2020) ESG shareholder engagement and downside risk. Working paper, University College Dublin, Dublin.Google Scholar
  • Hong H, Kacperczyk M (2009) The price of sin: The effects of social norms on markets. J. Financial Econom. 93(1):15–36.CrossrefGoogle Scholar
  • Hong H, Kostovetsky L (2012) Red and blue investing: Values and finance. J. Financial Econom. 103(1):1–19.CrossrefGoogle Scholar
  • Hong H, Li FW, Xu J (2019) Climate risks and market efficiency. J. Econometrics 208(1):265–281.CrossrefGoogle Scholar
  • Hong H, Wang J, Yu J (2008) Firms as buyers of last resort. J. Financial Econom. 88(1):119–145.CrossrefGoogle Scholar
  • Huang J, Xu N, Yu H (2020) Pollution and performance: Do investors make worse trades on hazy days? Management Sci. 66(10):4455–4476.LinkGoogle Scholar
  • Huynh T, Xia Y (2021) Climate change news risk and corporate bond returns. J. Financial Quantitative Anal. Forthcoming.CrossrefGoogle Scholar
  • Hsiang SM, Jina AS (2014) The causal effect of environmental catastrophe on long-run economic growth: Evidence from 6,700 cyclones. Working paper, University of California, Berkeley, CA.Google Scholar
  • Hsu PH, Li K, Tsou CY (2020) The pollution premium. Working paper, National Tsing Hua University, Hsinchu, Taiwan.Google Scholar
  • Hsu PH, Lee HH, Peng SC, Yi L (2018) Natural disasters, technology diversity, and operating performance. Rev. Econom. Statist. 100(4):619–630.CrossrefGoogle Scholar
  • Hwang CY, Titman S, Wang Y (2018) Investor tastes, corporate behavior and stock returns: An analysis of corporate social responsibility. Working paper, Nanyang Technological University, Singapore.Google Scholar
  • Ilhan E, Sautner Z, Vilkov G (2021) Carbon tail risk. Rev. Financial Stud. 34(3):1540–1571.CrossrefGoogle Scholar
  • Ilhan E, Krueger P, Sautner Z, Starks LT (2020) Institutional investors’ views and preferences on climate risk disclosure. Working paper, Frankfurt School of Finance & Management, Frankfurt, Germany.Google Scholar
  • Jiang F, Li CW, Qian Y (2020) Do costs of corporate loans rise with sea level? Working paper, University at Buffalo, Buffalo, NY.Google Scholar
  • Kahneman D (1973) Attention and Effort (Prentice-Hall, Englewood Cliffs, NJ).Google Scholar
  • Krueger P, Sautner Z, Starks LT (2020) The importance of climate risks for institutional investors. Rev. Financial Stud. 33(3):1067–1111.CrossrefGoogle Scholar
  • Lesk C, Rowhani P, Ramankutty N (2016) Influence of extreme weather disasters on global crop production. Nature 529(7584):84–98.CrossrefGoogle Scholar
  • Li JJ, Massa M, Zhang H, Zhang J (2021) Air pollution, behavioral bias, and the disposition effect in China. J. Financial Econom. Forthcoming.CrossrefGoogle Scholar
  • Lin H, Wang J, Wu C (2011) Liquidity risk and expected corporate bond returns. J. Financial Econom. 99(3):628–650.CrossrefGoogle Scholar
  • Lins KV, Servaes H, Tamayo A (2017) Social capital, trust, and firm performance: The value of corporate social responsibility during the financial crisis. J. Finance 72(4):1785–1824.CrossrefGoogle Scholar
  • Lou D (2014) Attracting investor attention through advertising. Rev. Financial Stud. 27(6):1797–1829.CrossrefGoogle Scholar
  • Massa M, Zhang L (2021) The spillover effects of hurricane Katrina on corporate bonds and the choice between bank and bond financing. J. Financial Quantitative Anal. 56(3):885–913.CrossrefGoogle Scholar
  • Newey WK, West KD (1987) A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica 55(3):703–708.CrossrefGoogle Scholar
  • Novy-Marx R (2013) The other side of value: The gross profitability premium. J. Financial Econom. 108(1):1–28.CrossrefGoogle Scholar
  • Painter M (2020) An inconvenient cost: The effects of climate change on municipal bonds. J. Financial Econom. 135(2):468–482.CrossrefGoogle Scholar
  • Pankratz N, Bauer R, Derwall J (2019) Climate change, firm performance, and investor surprises. Working paper, University of California, Los Angeles.Google Scholar
  • Patton AJ, Verardo M (2012) Does beta move with news? Firm-specific information flows and learning about profitability. Rev. Financial Stud. 25(9):2789–2839.CrossrefGoogle Scholar
  • Petersen MA (2009) Estimating standard errors in finance panel data sets: Comparing approaches. Rev. Financial Stud. 22(1):435–480.CrossrefGoogle Scholar
  • Rehse D, Riordan R, Rottke N, Zietz J (2019) The effects of uncertainty on market liquidity: Evidence from Hurricane Sandy. J. Financial Econom. 134(2):318–332.CrossrefGoogle Scholar
  • Riedl A, Smeets P (2017) Why do investors hold socially responsible mutual funds? J. Finance 72(6):2505–2550.CrossrefGoogle Scholar
  • Rozeff MS, Zaman MA (1998) Overreaction and insider trading: Evidence from growth and value portfolios. J. Finance 53(2):701–716.CrossrefGoogle Scholar
  • Schlenker W, Taylor CA (2021) Market expectations of a warming climate. J. Financial Econom. Forthcoming.CrossrefGoogle Scholar
  • Seltzer L, Starks L, Zhu Q (2020) Climate regulatory risk and corporate bonds. Working paper, University of Texas at Austin, Austin, TX.Google Scholar
  • Seyhun HN (1990) Overreaction or fundamentals: Some lessons from insiders’ response to the market crash of 1987. J. Finance. 45(5):1363–1388.CrossrefGoogle Scholar
  • Starks LT, Venkat P, Zhu Q (2020) Corporate ESG profiles and investor horizons. Working paper, University of Texas at Austin, Austin, TX.Google Scholar
  • Stern N (2007) The Economics of Climate Change: The Stern Review (Cambridge University Press, Cambridge, UK).CrossrefGoogle Scholar
  • The Economist (2017) Weather-related disasters are increasing.Google Scholar
  • Vuolteenaho T (2002) What drives firm-level stock returns? J. Finance 57(1):233–264.CrossrefGoogle Scholar
  • Wall Street Journal (2018) Bradley H, Nicole F. Climate change is forcing the insurance industry to recalculate. Published on October 2, 2018, https://www.wsj.com/graphics/climate-change-forcing-insurance-industry-recalculate/.Google Scholar
  • Welch I, Goyal A (2008) A comprehensive look at the empirical performance of equity premium prediction. Rev. Financial Stud. 21(4):1455–1508.CrossrefGoogle Scholar
  • Yan X, Zhang Z (2009) Institutional investors and equity returns: Are short-term institutions better informed? Rev. Financial Stud. 22(2):893–924.CrossrefGoogle Scholar
  • Zhang BY, Zhou H, Zhu H (2009) Explaining credit default swap spreads with the equity volatility and jump risks of individual firms. Rev. Financial Stud. 22(12):5099–5131.CrossrefGoogle Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.