Claudio Rizzi

Working Papers

1. The (Hidden) Costs of Destroying Nature: Wetland Loss and Municipal Bond Yields
   • Previously circulated as "Nature as a Defense from Disasters: Natural Capital and Municipal Bond Yields"
   • Winner of the BlackRock Applied Research Award
   • Featured on the United Nations Principles for Responsible Investment (UN PRI) Academic Blog
   • Best Ph.D. paper award at the FIASI-Gabelli School Student Research Competition on ESG, GRASFI Conference, Monash University FMCG Conference 2022, and Ivey/ARCS Ph.D. Sustainability Academy
   • Abstract

     This paper shows that climate risk mitigation strategies are priced in financial markets. Using extreme weather and natural capital loss shocks, I demonstrate that municipal bond markets start to price natural capital following an extreme weather event. The yield spread between counties that lose natural capital and those that do not, i.e., the adaptation premium, increases from zero to 17 basis points. This effect is more prominent for revenue bonds, bonds financing infrastructure projects, and bonds issued by counties dependent on farming. Natural capital protection could decrease the county's cost of debt by $2 million over the bonds' life.

2. Pollution and Entrepreneurship - Evidence from Cicadas Emergence
• Abstract

  This paper examines the impact of pollution on entrepreneurial activity. I use the recurring cicada emergence cycles in the U.S. as exogenous shocks to show that pollution caused by pesticide use decreases entrepreneurial activity and quality by about 4% and 3%, respectively. I find that pesticide pollution is linked to the households' decision to start a business through the impact of pollutants on health. Households exposed to an exogenous increase in pesticides experience an increase in health problems, medical expenses, and a decrease in health status. I also find evidence for the "job-lock" effect of employer-based insurance coverage on entrepreneurial activity. The impact of pollution is stronger for lower-income and minority households highlighting how pollution impacts socio-economic inequality.

3. Mortality, Demographic Changes, and Financial Market Outcomes with Alok Kumar and Ville Rantala
   • Abstract

     Motivated by the systematic liquidation patterns among the elderly, we examine whether mortality-induced demographic shifts affect mutual fund flows and stock returns. We find that fund flows are more positive during high mortality months, and this mortality-flow relation is stronger among funds that older investors prefer. At the state level, mortality predicts municipal bond fund flows, especially in states with higher income and higher elderly proportion. Using newspaper obituaries to measure mortality, we find that high mortality exposure stocks earn abnormal returns following abnormal mortality months. Known seasonal patterns in fund flows and stock returns cannot explain these findings.

Work in Progress

• Government-Funded Green Banks with Simon Xu and Paul Yoo
• Nature and Household Finances

References