Speaker: Marco Pagano , UniNa & CSEF
This paper investigates whether security markets price the eect of social dis-tancing on rms' operations. We document that rms that are more resilient to social distancing signicantly outperformed those with lower resilience duringthe COVID-19 outbreak, even after controlling for the standard risk factors. Similar cross-sectional return dierentials already emerged before the COVID-19 crisis: the 2014-19 cumulative return dierential between more and less resilient rms is of similar size as during the outbreak, suggesting growingawareness of pandemic risk well in advance of its materialization. Finally, we use stock option prices to infer the market's return expectations after the onset of the pandemic: even at a two-year horizon, stocks of more pandemic-resilient rms are expected to yield signicantly lower returns than less resilient ones, reecting their lower exposure to disaster risk. Hence, going forward, markets appear to price exposure to a new risk factor, namely, pandemic risk.