The Value of a Cure: An Asset Pricing Perspective

61 Pages Posted: 17 Nov 2020 Last revised: 12 Jun 2021

See all articles by Viral V. Acharya

Viral V. Acharya

Professor; New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Timothy C. Johnson

University of Illinois at Urbana-Champaign

Suresh M. Sundaresan

Columbia University - Columbia Business School, Finance

Steven Zheng

University of California, Berkeley; New York University (NYU) - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: March 19, 2021

Abstract

We estimate the value of ending a pandemic using the joint behavior of stock prices and a vaccine progress indicator during 2020. In a general equilibrium model, the observed market response to vaccine progress serves to identify the expected rate of loss of wealth during the pandemic, which pins down the economy-wide welfare gain attributable to a cure. With standard preference parameters, ending the pandemic is worth 5-15% of total wealth. This value rises with greater exposure externality in labor choice. With uncertainty about pandemic frequency and duration, resolving the uncertainty can be as valuable as the cure itself.

Keywords: pandemic, vaccine, COVID-19, rare disasters, regime-switching, parameter uncertainty

JEL Classification: G12, D5, I1, Q54

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Johnson, Timothy C. and Sundaresan, Suresh M. and Zheng, Steven, The Value of a Cure: An Asset Pricing Perspective (March 19, 2021). NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3731098 or http://dx.doi.org/10.2139/ssrn.3731098

Viral V. Acharya (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

Professor ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Timothy C. Johnson

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Suresh M. Sundaresan

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States
212-854-4423 (Phone)
212-316-9180 (Fax)

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ssundaresan/

Steven Zheng

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

HOME PAGE: http://stevenzheng1@github.io

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
2027697797 (Phone)

HOME PAGE: http://sites.google.com/view/stevenzheng

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