Opioid Crisis and Firm Downside Tail Risks: Evidence from the Option Market

Jie Cao, Amit Goyal, Yajing (Stella) Wang, Xintong Zhan and Weiming Elaine Zhang
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Jie Cao: The Hong Kong Polytechnic University - School of Accounting and Finance
Amit Goyal: University of Lausanne; Swiss Finance Institute
Yajing (Stella) Wang: The Hong Kong Polytechnic University - School of Accounting and Finance
Xintong Zhan: Department of Finance, School of Management, Fudan University
Weiming Elaine Zhang: IE Business School - IE University

No 24-74, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We explore how the opioid crisis exposure affects firm downside tail risks implied from equity options. Using a large sample of U.S. public firms from 1999 to 2020, we find that firms headquartered in regions with higher opioid death rates face higher downside tail risks, i.e., the cost of option protection against left tail risks is higher. The effects are reversed following exogenous anti-opioid legislation, supporting a causal interpretation. Further analysis shows that the opioid crisis heightens firm risk by lowering labor productivity. We document more pronounced impacts among firms with higher reliance on labor, limited local labor supply, and lower workplace safety.

Keywords: Opioid crisis; downside risk; equity options; labor productivity; labor supply (search for similar items in EconPapers)
JEL-codes: E24 G32 I18 J24 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2024-10
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2474

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