Pandemic tail risk

Matthijs Breugem, Raffaele Corvino, Roberto Marfè and Lorenzo Schönleber

Journal of Banking & Finance, 2024, vol. 167, issue C

Abstract: This paper studies the measurement of forward-looking tail risk in US equity markets around the COVID-19 outbreak. We document that financial markets are informative about how pandemic risk has spread in the economy in advance of the actual outbreak. While the tail risk of the market index did not respond before the outbreak, investors identified less pandemic-resilient economic sectors whose tail risk boomed in advance of both the market drawdown and the implementation of social distancing provisions. This pattern is consistent across different methodologies for measuring forward-looking tail risk, using option contracts, and across various horizons.

Keywords: COVID-19; Tail risk; Economic sectors; Resilience; Event study (search for similar items in EconPapers)
JEL-codes: G01 G10 G12 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:167:y:2024:i:c:s0378426624001717

DOI: 10.1016/j.jbankfin.2024.107257

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