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Wednesday, August 4 • 1:00pm - 2:30pm
7C1 Hurricane Risk and Asset Prices

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Julia Braun, University of St. Gallen, Institute for Insurance Economics; Alexander Braun, University of St. Gallen; Florian Weigert, University of Neuchatel

This paper examines how natural disaster risk feeds into the U.S. stock market and whether investors receive compensation for holding hurricane-sensitive stocks. Our paper theoretically motivates the natural catastrophe risk premium by consumption-based asset pricing with heterogenous agents subject to idiosyncratic labor income shocks. We show that the cross-section of expected stock returns reflects a premium for hurricane risk as measured by the individual stock return's regression coefficient with our hurricane risk factor. We contribute to the rare-disaster risk literature by explicitly focusing on natural catastrophe risk and by constructing a hurricane factor using all U.S. common stocks.

Discussant
BC

Benjamin Collier

Temple University

Presenters
AB

Alexander Braun

University of St. Gallen



Wednesday August 4, 2021 1:00pm - 2:30pm EDT