Climate Disaster-Triggered Attention Shifts: Evidence from Green Mutual Fund Flows

Abstract: This thesis empirically investigates the degree to which climate disasters have a behavioral impact on mutual fund flows into green versus non-green funds. Through a twofold analysis that studies both Google search volume-proxied investor attention as well as green and control mutual fund flows, we show that local climate disasters have a positive impact on both investor attention and behavior towards green funds. Thus, even though climate change is a gradual process, its investor awareness happens rather in shocks. These findings follow from the May 2018 to December 2021 period, wherein we identify green funds through the Morningstar Low Carbon Designation. Beyond that, we find this effect to hold for up to three months, and we show that the effect is stronger for local disasters than for larger foreign disasters, the latter playing into the salience explanation. In line with prior studies' findings, our paper adds to literature on climate-related investment behavior and can be of value to investors and equity analysts.