Climate Risk and Asset Pricing
Paper Session
Monday, Jan. 5, 2026 8:00 AM - 10:00 AM (EST)
- Riccardo Colacito, University of North Carolina-Chapel Hill
A Market-Based Measure of Ambiguity Aversion: Housing Prices Under Rising Seas
Abstract
We examine how ambiguity aversion shapes real estate market responses to long-run sea-level rise (SLR) risk. We link theory and empirics to quantify ambiguity aversion, and explore how this parameter impacts real estate markets and raises homeowners’ willingness to invest in climate change adaptation. Using a novel dataset of projected inundation times for over two million coastal homes, we show that housing prices reflect both expected SLR risk and uncertainty across climate scenarios. We estimate an ambiguity aversion parameter, and find that this shifts probability weights toward worst-case scenarios, substantially increasing the weight on the most extreme SLR projections. Our paper provides the first market-based estimates for ambiguity aversion parameters in the field. We further use our model and estimates to provide new estimates for very long-run discount rates.Two Centuries of U.S. Innovation: Firms' Internal Networks and Resilience to Disasters
Abstract
Using advanced machine learning methods, we construct a comprehensive database of the universe of approximately 12 million U.S. patents from 1836 to 2023. We analyze the resilience of innovation to disaster shocks using hurricane landfall data spanning two centuries. Major hurricanes destroy local innovative capacity for up to a decade and lead to permanent losses relative to the counterfactual. Multi-location firms reallocate resources from establishments in the landfall region and increase innovation in establishments elsewhere in the aftermath of a hurricane. These positive spillovers along firms' internal networks increase aggregate innovation in counties distant from the hurricane.Allocative Efficiency of Green Finance Instruments
Abstract
This paper investigates the allocative efficiency of green finance instruments through a general equilibrium model with heterogeneous firms and financial frictions. We emphasize the impact of the timing of financial instruments—'ex-post', such as carbon taxes, versus 'ex-ante', like green credit schemes—on the distribution of dirty capital and its environmental implications. Our study reveals that ex-post instruments inadvertently direct dirty capital towards financially constrained firms with higher emission intensity, potentially exacerbating economy-wide emission. Conversely, ex-ante instruments yield beneficial redistributions. The study emphasizes the significance of incorporating the distributive effects of green finance tools into their design and advocates for a general equilibrium viewpoint to evaluate their effectiveness comprehensively, highlighting the pivotal role of instrument timing.Discussant(s)
Tuomas Tomunen
,
Massachusetts Institute of Technology
Jarda Borovicka
,
New York University
Pedro Matos
,
University of Virginia
Lorenzo Garlappi
,
University of British Columbia
JEL Classifications
- G0 - General