When the Markets Get CO.V.I.D.: COntagion, Viruses, and Information Diffusion

43 Pages Posted: 25 Mar 2020 Last revised: 24 Jun 2020

See all articles by Mariano (Max) Massimiliano Croce

Mariano (Max) Massimiliano Croce

Finance Department, Bocconi University; Centre for Economic Policy Research (CEPR)

Paolo Farroni

Bocconi University; Bank of Italy

Isabella Wolfskeil

Bocconi University

Multiple version iconThere are 2 versions of this paper

Date Written: March 23, 2020

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, Pandemic, Asset Prices

JEL Classification: G01, G1, I1

Suggested Citation

Croce, Mariano Massimiliano and Farroni, Paolo and Wolfskeil, Isabella, When the Markets Get CO.V.I.D.: COntagion, Viruses, and Information Diffusion (March 23, 2020). Available at SSRN: https://ssrn.com/abstract=3560347 or http://dx.doi.org/10.2139/ssrn.3560347

Mariano Massimiliano Croce (Contact Author)

Finance Department, Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://sites.google.com/view/mmcroce/home

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Paolo Farroni

Bocconi University ( email )

Milano
Italy

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Isabella Wolfskeil

Bocconi University

Via Roentgen 1
Milano, MI 20136
Italy

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