Asset pricing tests for pandemic risk

Dojoon Park, Yong Joo Kang and Young Ho Eom

International Review of Economics & Finance, 2024, vol. 89, issue PA, 1314-1334

Abstract: This study examines the relationship between the COVID-19 pandemic and stock returns. We find that pandemic risk is a significant determinant of cross-sectional stock returns. The time-varying effective reproduction number from the susceptible-infectious-recovered epidemic model is introduced as a proxy measure for COVID-19 risk. The two-step generalized method of moments estimation results indicate that the COVID-19 factor commands a significant positive risk premium. The results are robust to different test assets, serial interval parameters, portfolio construction methods and alternative proxy measures, providing strong empirical evidence that the COVID-19 factor is a priced risk factor during the COVID-19 pandemic.

Keywords: Asset pricing; COVID-19; Pandemic risk; Reproduction number (search for similar items in EconPapers)
JEL-codes: C58 G01 G12 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pa:p:1314-1334

DOI: 10.1016/j.iref.2023.08.014

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