Disaster Resilience and Asset Prices

Marco Pagano, Christian Wagner () and Josef Zechner
Additional contact information
Christian Wagner: WU Vienna University of Economics and Business and Vienna Graduate School of Finance (VGSF)

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: This paper investigates whether security markets price the effect of social distancing on firms' operations. We document that firms that are more resilient to social distancing significantly 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 significantly 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: 2020-05-18
New Economics Papers: this item is included in nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (91)

Downloads: (external link)
http://www.csef.it/WP/wp563.pdf (application/pdf)

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:sef:csefwp:563

Access Statistics for this paper

More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC.
Bibliographic data for series maintained by Dr. Maria Carannante ().