The paper studies the effects that natural disasters have on the portfolio choices of international investors. It uses weekly data on financial flows to equity funds in 39 countries, as well as information on the natural disasters that have occurred in each of these countries since 2009 in order to study the effect of climate-related extreme events on financial investment towards the affected countries, their neighbouring nations and those considered as more climate-safe.
The occurrence of natural disasters has a negative effect on net investment flows into the affected country only if the latter is an emerging economy at high climate risk. In that case, inflows also fall for other emerging countries at high climate risk in the same geographic area, suggesting heightened perception of climate risks on the part of investors; at the same time, flows to advanced countries increase, to a greater extent for those less exposed to such risks.
