When the Markets Get CO.V.I.D.: COntagion, Viruses, and Information Diffusion
55 Pages Posted: 25 Mar 2020 Last revised: 2 May 2022
Date Written: March 23, 2020
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, Announcements, Information, Asset Prices
JEL Classification: G01, G1, I1
Suggested Citation: Suggested Citation