Pricing Poseidon: Extreme Weather Uncertainty and Firm Return Dynamics

Kruttli, Mathias S.; Tran, Brigitte Roth; Watugala, Sumudu W.

doi:10.17016/feds.2019.054

Cited by 10 publications

(11 citation statements)

References 32 publications

(48 reference statements)

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“…Equity prices of financial service providers domiciled in OFCs do not react after hurricanes hit while equity of financial service providers domiciled in non-OFCs exhibit significant negative abnormal returns. The non-OFC result confirms recent work about hurricane impacts on stock markets (Kruttli et al, 2019).…”

Section: Introductionsupporting

confidence: 86%

The Elusive Banker: Using Hurricanes to Uncover (Non-)Activity in Offshore Financial Centers

Miethe¹

2020

SSRN Journal

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This paper studies financial service provision booked through offshore financial centers (OFCs). Based on several novel data sources and recent advances in event study methodology, I exploit the natural experiment of re-occurring hurricanes hitting small islands and compare local reactions to reactions in financial service activity. I find that local conditions, captured by monthly satellite data on nightlight intensity, deteriorate significantly for nine months. However, in OFCs, the international bank sector does not react. Non-OFC islands on the other hand do show strong negative reactions. Similar (non-)reactions are visible in equity prices. Additionally, a link of OFC service provision to activity in London, Tokyo, and New York is visible in leaked data. Finally, a long term relationship between offshore finance and local development is absent, but only on OFCs. These results indicate that international regulation attempts that aim at forcing OCFs to provide information on financial service activity could be targeted better, they show that we mis-allocate financial risk to OFCs, and they cast doubt on offshore finance as a valid development strategy.

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Section: Introductionsupporting

confidence: 86%

The Elusive Banker: Using Hurricanes to Uncover (Non-)Activity in Offshore Financial Centers

Miethe¹

2020

SSRN Journal

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“…Balvers et al (2017) show that firms subject to high temperature shocks have higher capital costs. There is evidence that extreme weather events are incorporated into stock and option market prices (Kruttli et al, 2019;Choi et al, 2020). 6 Transition risks arise from adjustments made towards developing a green economy and depend on the timing and speed of this process.…”

Section: Introductionmentioning

confidence: 99%

Do Banks Fuel Climate Change?

et al. 2021

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Do climate-oriented regulatory policies affect the flow of credit towards polluting corporations? We match loan-level data to firm-level greenhouse gas emissions to assess the impact of the Paris Agreement. We find that, following this agreement, European banks reallocated credit away from polluting firms. In the aftermath of President Trump's 2017 announcement that the United States was withdrawing from the Paris Agreement, lending by European banks to polluting firms in the United States decreased even further in relative terms. It follows that green regulatory initiatives in banking can have a significant impact combating climate change.

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“…For instance, Autor et al (2013) and Mian and Sufi (2014) provide evidence that local employment shocks have correlated effects within a region, and Tuzel and Zhang (2017) studies correlated exposure to regional risk associated with changes in local prices for factors of production. Even local climate risk could expose multiple firms to the same regional risks (see e.g., Barrot and Sauvagnat (2016) and Kruttli et al (2019)).…”

Section: Introductionmentioning

confidence: 99%

Risk in Network Economies

Sellemi¹

2022

Preprint

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Economic models with input-output networks assume that firm or sector (unit) growth is driven by a weighted sum of trade partners' growth and an independently-drawn idiosyncratic shock. I show that the idiosyncratic risk assumption in a broad class of network models implicitly generates restrictions on the network weights which are unrealistic. When allowing for correlated shocks, units are exposed to an additional risk term which captures the ability to substitute away from supply and demand shocks propagating through the network. I provide empirical evidence that changes in substitutability between trade partners are inversely related to changes in the panel of realized industry variance. Moreover, I find that supply-side (demandside) substitutability is closely related to technological (product) dispersion of a unit's suppliers (customers). To synthesize these results, I propose a production-based asset pricing model in which supply chain substitutability is a function of dispersion in product/technology space and correlation in supply and demand shocks is driven by shared customers and suppliers between firms. The model predicts that assets which are positively exposed to average propagation of upstream and downstream shocks are useful hedges and thus earn lower average risk premia. Consistently, I find that estimated upstream (downstream) propagation factors earn return spreads of -11.4% (-4.2%) and are negatively associated with aggregate consumption, output, and dividend growth.

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Pricing Poseidon: Extreme Weather Uncertainty and Firm Return Dynamics

Cited by 10 publications

References 32 publications

The Elusive Banker: Using Hurricanes to Uncover (Non-)Activity in Offshore Financial Centers

The Elusive Banker: Using Hurricanes to Uncover (Non-)Activity in Offshore Financial Centers

Do Banks Fuel Climate Change?

Risk in Network Economies

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