Disaster Resilience and Asset Prices

Josef Zechner, Marco Pagano and Christian Wagner

No 14773, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates whether the stock market prices the effect of social dis- tancing on firms' operations. We document that firms that are more resilient to social distancing signifcantly outperformed those with lower resilience during the COVID-19 outbreak, even after controlling for the standard risk factors. Similar cross-sectional return differentials already emerged before the COVID- 19 crisis: the 2014-19 cumulative return differential between more and less resilient firms is of similar size as during the outbreak, suggesting growing awareness of pandemic risk well in advance of its materialization. Finally, we use stock option prices to infer the market's return expectations after the onset of the pandemic: even at a two-year horizon, stocks of more pandemic-resilient firms are expected to yield signifcantly lower returns than less resilient ones, reflecting their lower exposure to disaster risk. Hence, going forward, markets appear to price exposure to a new risk factor, namely, pandemic risk.

Keywords: Asset pricing; Rare disasters; Social distance; Resilience; Pandemics (search for similar items in EconPapers)
JEL-codes: G01 G11 G12 G13 G14 Q51 Q54 (search for similar items in EconPapers)
Date: 2020-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (89)

Downloads: (external link)
https://cepr.org/publications/DP14773 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Disaster resilience and asset prices (2023)
Working Paper: Disaster Resilience and Asset Prices (2021)
Working Paper: Disaster resilience and asset prices (2021)
Working Paper: Disaster Resilience and Asset Prices (2020)
Working Paper: Disaster Resilience and Asset Prices (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14773

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14773

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().