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When the Markets Get COVID: COntagion, Viruses, and Information Diffusion

Mariano Croce, Paolo Farroni and Isabella Wolfskeil

No 14674, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We quantify the exposure of major financial markets to news shocks about global contagion risk accounting for local epidemic conditions. For a wide cross section of countries, we construct a novel data set comprising (i) announcements related to COVID19, and (ii) high-frequency data on epidemic news diffused through Twitter. Across several classes of financial assets, we provide novel empirical evidence about {financial dynamics (i) around epidemic announcements, (ii) at a daily frequency, and (iii) at an intra-daily frequency.} Formal estimations based on both contagion data and social media activity about COVID19 confirm that the market price of contagion risk is very significant. We conclude that prudential policies aimed at mitigating either global contagion or local diffusion may be extremely valuable.

Keywords: Contagion; Epidemic; Asset prices (search for similar items in EconPapers)
JEL-codes: G01 G1 I1 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-ifn, nep-mst and nep-rmg
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