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Discussion Paper
Spatial Variation in the 2020 Housing Market Decline and Recovery
After plunging in the spring due to the COVID-19 pandemic, residential investment had a strong recovery in the second half of 2020. The initial decline resulted from both a disruption in activity due to social distancing, a broad-based drop in demand from economic uncertainty, and reduced access to credit (DeSanctis 2020).
Working Paper
Pricing Poseidon: Extreme Weather Uncertainty and Firm Return Dynamics
We investigate the uncertainty dynamics surrounding extreme weather events through the lens of option and stock markets by identifying market responses to the uncertainty regarding both potential hurricane landfall and subsequent economic impact. Stock options on firms with establishments exposed to the landfall region exhibit increases in implied volatility of 5-10 percent, reflecting impact uncertainty. Using hurricane forecasts, we show that landfall uncertainty and potential impact uncertainty are reflected in prices before landfall. We find no evidence that markets incorporate better ...
Journal Article
Extreme Weather and Financial Market Uncertainty
Extreme weather can have negative, minimal, or even positive effects on business performance—creating significant uncertainty about outcomes for those businesses. Financial markets show heightened uncertainty among investors for companies that have been hit by hurricanes. This uncertainty persists for several months after a hurricane’s landfall, as reflected by continued discussion of hurricanes in analyst calls. Comparing expected volatility to actual volatility shows that markets have underreacted to the uncertainty caused by hurricanes. After Hurricane Sandy, a particularly salient ...
Working Paper
Pricing Poseidon: Extreme Weather Uncertainty and Firm Return Dynamics
We present a framework to identify market responses to uncertainty faced by firms regarding both the potential incidence of extreme weather events and subsequent economic impact. Stock options of firms with establishments in forecast and realized hurricane landfall regions exhibit large increases in implied volatility, reflecting significant incidence uncertainty and long-lasting impact uncertainty. Comparing ex ante expected volatility to ex post realized volatility by analyzing volatility risk premia changes shows that investors significantly underestimate extreme weather uncertainty. After ...
Working Paper
The Local Economic Impact of Natural Disasters
We use county panel data to study the dynamic responses of local economies after naturaldisasters in the U.S. Specifically, we estimate disaster impulse response functions for personalincome per capita and a broad range of other economic outcomes, using a panel version of thelocal projections estimator. In contrast to some recent cross-country studies, we find thatdisasters increase total and per capita personal income over the longer-run (as of 8 years out).The effect is driven initially largely by a temporary employment boost and in the longer run byan increase in average weekly wages. We ...
Working Paper
The Canary in the Coal Decline: Appalachian Household Finance and the Transition from Fossil Fuels
The energy transition away from fossil fuels presents significant transition risks for communities historically built around the fossil fuel industry. This paper uses the decline in the Appalachian coal industry between 2011 and 2018 to understand how individuals are harmed by a reduction in local fossil fuel extraction activity. We use individual-level credit data and exogenous variation in coal demand from the electricity sector to identify how the coal mining industry’s decline affected the finances of Appalachian households. We find that the decline in demand for coal caused broad-based ...
Working Paper
Sellin' in the Rain: Weather, Climate, and Retail Sales
I apply a novel machine-learning based “weather index” method to daily store- level sales data for a national apparel and sporting goods brand to examine short-run responses to weather and long-run adaptation to climate. I find that even when considering potentially offsetting shifts of sales between outdoor and indoor stores, to the firm's website, or over time, weather has significant persistent effects on sales. This suggests that weather may increase sales volatility as more severe weather shocks be- come more frequent under climate change. Consistent with adaptation to climate, I ...
Working Paper
Divest, Disregard, or Double Down?
How much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? Endowments typically disregard the objectionable nature of or divest from such firms. However, if firm returns increase with activities the endowment combats, doubling down on the investment increases expected utility by aligning funding availability with need. I call this "mission hedging." This paper offers the first model that characterizes the endowment's investment decision on the objectionable firm, defines investment trade-offs, and examines related ...
Working Paper
Sellin’ in the Rain: Adaptation to Weather and Climate in the Retail Sector
Using novel methodology and proprietary daily store-level sporting goods and apparel brand data, I find that, consistent with long-run adaptation to climate, sales sensitivity to weather declines with historical norms and variability of weather. Short-run adaptation to weather shocks is dominated by changes in what people buy and how they buy it, with little intertemporal substitution. Over four weeks, a one-standard deviation one-day weather shock shifts sales by about 10 percent. While switching between indoor and outdoor stores offsets a small portion of contemporaneous responses to ...
Journal Article
The Impact of Weather on Retail Sales
Variation in weather could cause greater disruptions to a range of economic outcomes as severe weather events become more frequent or more extreme. Analyzing daily sales at a national apparel and sporting goods brand’s stores reveals that weather effects on store sales are surprisingly persistent, even after accounting for shoppers simply changing when and where they make their purchases. Moreover, sales at stores that have more experience with adverse weather events have a lower response, suggesting that adaptation may reduce the negative impact of increasingly severe weather on sales.