COVID-19 Intensity, Resilience, and Expected Returns
Year: 2025
Type: article
Abstract: This paper provides a model to interpret the relative behavior of expected returns of high-and low-resilience assets in COVID time. Following Pagano et al. (2023), this paper proposes an asset pricing model including the novel definition of disaster based on COVID intensity. The setup allows to disentangle between the probability of disaster and investors' updating probability at each point of time that sheds light on how long-memory investor can play role in future prices. This evidence provides a sign of investor's learning even in case of a no-disaster. The theoretical results show higher revisions in expected return differential in case of any perception of a higher possibility of disaster or equivalently higher COVID intensity. The intensity of COVID-19 can directly exacerbate the heterogeneity in expected return for high-and low-resilience assets and the corresponding differentials. More importantly, an increase in COVID-19 intensity increases the expected return of low-resilience assets more than that of high-resilience ones.
Source: Risks
Author: Elham Daadmehr
Institutions: University of Padua, University of Naples Federico II
Language: English
Topic: COVID-19 Pandemic Impacts
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $2,172
Funder: Università degli Studi di Padova
OpenAlex ID: W4408669426