Do Fund Managers Misestimate Climatic Disaster Risk

By Shashwat Alok, Nitin Kumar, Russ Wermers. The Review of financial studies, 2020

263 citations recorded by the source corpus.

We examine whether professional money managers overreact to large climatic disasters. We find that managers within a major disaster region underweight disaster zone stocks to a much greater degree than distant managers and that this aversion to disaster zone stocks is related to a salience bias that decreases over time and distance from the disaster, rather than to superior information possessed by close managers. This overreaction can be costly to fund investors for some especially salient disasters like hurricanes and tornadoes: a long-short strategy that exploits the overreaction generates a significant DGTW-adjusted return over the following 2 years.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/befe0a725678769bd890aff73675f3b1c93dcd5e

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Citations in the corpus

Hedging Climate Change News (2019, methodology): “We follow a dynamic hedging approach similar to Black and Scholes (1973) and Merton (1973).”