Pandemic Tail Risk

41 Pages Posted: 3 Dec 2020 Last revised: 11 Feb 2022

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 around the COVID-19 outbreak in February 2020. We document that financial markets are informative about how pandemic risk has spread in the economy in advance of the actual outbreak. While the tail risk of the market index did not respond before the outbreak, investors recognized less pandemic-resilient economic sectors whose tail risk boomed in advance. This pattern is robust to alternative specifications of tail risk, measured from either option or credit default swap contracts, and to various horizons.

Keywords: COVID-19, tail risk, economic sectors, resilience

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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