Pandemic Tail Risk

41 Pages Posted: 3 Dec 2020 Last revised: 3 May 2021

See all articles by Matthijs Breugem

Matthijs Breugem

University of Turin - Collegio Carlo Alberto

Raffaele Corvino

University of Torino & CERP

Roberto Marfè

University of Turin - Collegio Carlo Alberto

Lorenzo Schoenleber

Collegio Carlo Alberto

Date Written: December 2, 2020

Abstract

This paper studies the tail risk of US equity markets in advance of the COVID-19 outbreak in February 2020, providing evidence that financial markets are informative about pandemic risk well in advance of the actual outbreak. Specifically, while the tail risk of the market index did not respond before the outbreak, we document that the tail risk of less pandemic-resilient economic sectors boomed in advance. This result is robust to alternative specifications of tail risk measured from either option or credit default swap contracts. Long-horizon tail risk measures provide information about investors' perception of pandemic risk persistence and economic recovery.

Keywords: COVID-19, tail risk, economic sectors

JEL Classification: G01, G10, G12, G14

Suggested Citation

Breugem, Matthijs and Corvino, Raffaele and Marfè, Roberto and Schönleber, Lorenzo, Pandemic Tail Risk (December 2, 2020). Available at SSRN: https://ssrn.com/abstract=3741292 or http://dx.doi.org/10.2139/ssrn.3741292

Matthijs Breugem

University of Turin - Collegio Carlo Alberto ( email )

Piazza Albarello 8
Torino, Torino 10122
Italy

Raffaele Corvino

University of Torino & CERP ( email )

Corso Unione Sovietica 218bis
Piazza Arbarello 8
Torino, 10134
Italy
+39 3465316931 (Phone)

HOME PAGE: http://raffaelecorvino.com

Roberto Marfè

University of Turin - Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10122
Italy

Lorenzo Schönleber (Contact Author)

Collegio Carlo Alberto ( email )

Piazza Vincenzo Arbarello, 8
Torino, Torino 10122
Italy

HOME PAGE: http://https://www.carloalberto.org/person/lorenzo-schoenleber/

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