Can municipal bonds hedge US state-level climate risks?
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Date
Authors
Polat, Onur
Gupta, Rangan
Cepni, Oguzhan
Ji, Qiang
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
Using daily data on municipal bonds and equity returns from the 50 US states, we find barring extreme periods of financial, macroeconomic, and health crises, the underlying conditional correlation between these two assets is negative. When we capture the effect of climate risk quantiles on the entire conditional distribution of the underlying time-varying stock-bond correlation, we generally observe a negative impact at different levels of climate risks, although this could turn positive in the event of extreme climate disasters. In summary, the role of municipal bonds as a hedge against climate risks cannot be denied, carrying important implications for investors.
Description
DATA AVAILABILITY : Data will be made available on request.
Keywords
Stocks and bonds returns, Time-varying conditional correlation, ADCC-GARCH, Climate risks, QQ regressions, US states, Asymmetric dynamic conditional correlations (ADCC), Generalized autoregressive conditional heteroskedasticity (GARCH), Quantile-on-quantile (QQ), SDG-08: Decent work and economic growth, SDG-13: Climate action
Sustainable Development Goals
SDG-08:Decent work and economic growth
SDG-13:Climate action
SDG-13:Climate action
Citation
Polat, O., Gupta, R., Cepni, O. et al. 2024, 'Can municipal bonds hedge US state-level climate risks?', Finance Research Letters, vol. 67, art. 105915, pp. 1-10, doi : 10.1016/j.frl.2024.105915.