Essays on Finance and Climate Risk

Abstract

This thesis consists of three chapters on climate risks and financial markets. The first chapter studies how residential mortgage contracts distribute flood risk exposures across banks, households, and the government flood insurer. I find that banks offload flood risk to the government through flood insurance contracts, and to households through higher required down payments. This credit rationing shifts the composition of mortgages in flood zones towards richer and higher credit quality borrowers. The second chapter, joint with David Thesmar, Augustin Landier, and Jean-Francois Bonnefon, characterizes investors’ moral preferences in a parsimonious experimental setting, where we auction stocks with various ethical features. We find strong evidence that investors seek to align their investments with their social values (“value alignment”), and find no evidence of behavior driven by the social impact of investment decisions (“impact-seeking preferences”). The third chapter proposes a simple structural model to study substitution patterns within the class of safe and liquid assets at the extreme short-end of the yield curve. Demand system estimates suggest that treasury securities and financial commercial paper are nearly perfect substitutes.