Catastrophic Risk and Credit Markets




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    • Mark Garmaise is from the Anderson School of Management, University of California, Los Angeles. Tobias Moskowitz is from the University of Chicago Graduate School of Business and NBER. We thank Bing Han, Robert Novy-Marx, Cam Harvey (the editor), two anonymous referees, and seminar participants at Emory, University of California, Berkeley, and the Vail Real Estate Research Conference for helpful comments. We thank AIR Worldwide Corporation, Guy Carpenter, and for providing data. Moskowitz thanks the Center for Research in Security Prices and the Neubauer Family Faculty Fellowship for financial support.


We provide a model of the effects of catastrophic risk on real estate financing and prices and demonstrate that insurance market imperfections can restrict the supply of credit for catastrophe-susceptible properties. Using unique micro-level data, we find that earthquake risk decreased commercial real estate bank loan provision by 22% in California properties in the 1990s, with more severe effects in African–American neighborhoods. We show that the 1994 Northridge earthquake had only a short-term disruptive effect. Our basic findings are confirmed for hurricane risk, and our model and empirical work have implications for terrorism and political perils.