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Flight to climatic safety: local natural disasters and global portfolio flows

Author

Listed:
  • Fabrizio Ferriani

    (Bank of Italy)

  • Andrea Gazzani

    (Bank of Italy)

  • Filippo Natoli

    (Bank of Italy)

Abstract

Using data from a broad panel of countries at a weekly frequency, we find that local natural disasters have significant effects on global portfolio flows. First, when disasters strike, international investors reduce their net flows to equity mutual funds exposed to affected countries. This only happens when disasters occur in the emerging economies that are more exposed to climate risk. Second, natural disasters lead investors to reduce their portfolio flows into unaffected, high-climate-risk countries in the same region as well. Third, disasters in high-climate-risk emerging economies spur investment flows into advanced countries that are relatively safer from a climate risk standpoint. Overall, this suggests that natural disasters trigger an updating of beliefs about global climate threats that are propagated via a new channel: international investors search for climatic safety.

Suggested Citation

  • Fabrizio Ferriani & Andrea Gazzani & Filippo Natoli, 2023. "Flight to climatic safety: local natural disasters and global portfolio flows," Temi di discussione (Economic working papers) 1420, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1420_23
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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2023/2023-1420/en_tema_1420.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    climate change; natural disasters; capital flows; flight-to-safety; emerging markets;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F3 - International Economics - - International Finance
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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