Work

Who Should be Afraid of Infections? Pandemic Exposure and the Cross-Section of Stock Returns

Year: 2020

Type: article

Abstract: Does past stock price reaction to pandemics contain information about future returns? To answer this, we estimate firm exposure to a pandemic index representing global concerns of infectious diseases. We demonstrate that such a pandemic beta reliably predicts the cross-section of future stock returns. The highest pandemic beta decile outperforms the lowest pandemic beta decile by about 1% per month on a risk-adjusted basis. The effect is not explained by well-known return predictors and is robust to many considerations. Our findings indicate that investors do not correctly price information stemming from firms’ reactions to pandemics.

Source: Journal of International Financial Markets Institutions and Money

DOI: 10.1016/j.intfin.2021.101333

Authors: Nusret Cakici, Adam Zaremba

Institutions: Fordham University, Poznań University of Economics and Business, Université de Montpellier, MBS School of Business

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $1,100

Funders: Narodowe Centrum Nauki, Narodowym Centrum Nauki