Capital market investors would be attracted to these finance products due to high returns and a lack of correlation with developed world asset prices. As mentioned before, these investments can also hedge against climate risks and GCRs.
Why should we expect high returns? ILS / “Cat Bonds” don’t seem to have especially high returns, and I’m not sure what the economic justification for them having high returns would be?
Capital market investors would be attracted to these financial products because they are not correlated with developed world asset prices. As mentioned before, these investments can also hedge against climate risks and GCRs.
Lots of products aren’t correlated to financial markets. (Betting on sports for example). That doesn’t mean investors want to put money in.
Another point is that if they hedge against climate risk, and you think climate risk will materially affect the world, then you should expect these products to be correlated to the market. (But at least then they might have some excess return).
Why should we expect high returns? ILS / “Cat Bonds” don’t seem to have especially high returns, and I’m not sure what the economic justification for them having high returns would be?
Good catch. Investors care about return vs risk. It also allows them to diversify and have lower risk / higher returns for their portfolio.
Lots of products aren’t correlated to financial markets. (Betting on sports for example). That doesn’t mean investors want to put money in.
Another point is that if they hedge against climate risk, and you think climate risk will materially affect the world, then you should expect these products to be correlated to the market. (But at least then they might have some excess return).