Using a rare disaster risk database from almost the last one hundred years, we examine the differences in the reaction of asset prices to rare disaster risk between commodity and financial assets. We first employ time-varying parameter VAR (TVP-VAR) models to investigate the role of rare disaster risk in the price dynamics of major asset markets. The results indicate that disaster risk generally has a more intense and persistent impact on crude oil and stock markets when compared to gold and

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... d markets. However, the role of rare disaster risk differs substantially between commodity and financial assets, as well as between the short and long term. Moreover, when using a nonparametric causality-in-quantiles method to detect causal relationships, we provide evidence of the nonlinear causality effect of rare disaster risks on asset volatilities, and not their returns, except for crude oil. In addition, we demonstrate that augmenting a diversified portfolio of stock or bonds with gold can significantly increase its risk-adjusted performance. The findings have important implications for investors as well as policymakers.