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When the Markets Get COVID: COntagion, Viruses, and Information Diffusion

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  • Croce, Mariano
  • Farroni, Paolo
  • Wolfskeil, Isabella

Abstract

We quantify the exposure of major financial markets to news shocks about global contagion risk accounting for local epidemic conditions. For a wide cross section of countries, we construct a novel data set comprising (i) announcements related to COVID19, and (ii) high-frequency data on epidemic news diffused through Twitter. Across several classes of financial assets, we provide novel empirical evidence about {financial dynamics (i) around epidemic announcements, (ii) at a daily frequency, and (iii) at an intra-daily frequency.} Formal estimations based on both contagion data and social media activity about COVID19 confirm that the market price of contagion risk is very significant. We conclude that prudential policies aimed at mitigating either global contagion or local diffusion may be extremely valuable.

Suggested Citation

  • Croce, Mariano & Farroni, Paolo & Wolfskeil, Isabella, 2020. "When the Markets Get COVID: COntagion, Viruses, and Information Diffusion," CEPR Discussion Papers 14674, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14674
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    1. Ricardo J Caballero & Alp Simsek, 2021. "A Model of Endogenous Risk Intolerance and LSAPs: Asset Prices and Aggregate Demand in a “COVID-19” Shock [Financial intermediaries and the cross-section of asset returns]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5522-5580.
    2. Matthijs Breugem & Raffaele Corvino & Roberto Marfe & Lorenzo Schonleber, 2024. "Pandemic Tail Risk," Carlo Alberto Notebooks 714 JEL Classification: C, Collegio Carlo Alberto.
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    7. Kang, Yong Joo & Park, Dojoon & Eom, Young Ho, 2024. "Global contagion of US COVID-19 panic news," Emerging Markets Review, Elsevier, vol. 59(C).
    8. Michal Bernardelli & Zbigniew Korzeb & Pawel Niedziolka, 2021. "The banking sector as the absorber of the COVID-19 crisis’ economic consequences: perception of WSE investors," Oeconomia Copernicana, Institute of Economic Research, vol. 12(2), pages 335-374, June.
    9. Barrot, Jean-Noël & Bonelli, Maxime & Grassi, Basile & Sauvagnat, Julien, 2024. "Causal effects of closing businesses in a pandemic," Journal of Financial Economics, Elsevier, vol. 154(C).
    10. Chen, Zhuo & Li, Pengfei & Liao, Li & Liu, Lu & Wang, Zhengwei, 2024. "Assessing and addressing the coronavirus-induced economic crisis: Evidence from 1.5 billion sales invoices," China Economic Review, Elsevier, vol. 85(C).
    11. Iwanicz-Drozdowska, Małgorzata & Rogowicz, Karol & Kurowski, Łukasz & Smaga, Paweł, 2021. "Two decades of contagion effect on stock markets: Which events are more contagious?," Journal of Financial Stability, Elsevier, vol. 55(C).
    12. Suleman, Muhammad Tahir & Yaghoubi, Mona, 2022. "Infectious disease and corporate activities," Economics Letters, Elsevier, vol. 212(C).
    13. Contessi, Silvio & De Pace, Pierangelo, 2021. "The international spread of COVID-19 stock market collapses," Finance Research Letters, Elsevier, vol. 42(C).
    14. Hsuan Fu & Jui‐Chung Yang, 2022. "International currency markets and the COVID‐19 pandemic," Pacific Economic Review, Wiley Blackwell, vol. 27(4), pages 400-422, October.
    15. Donato Masciandaro, 2020. "Ecb Helicopter Money: Economic And Political Economy Arithmetics," BAFFI CAREFIN Working Papers 20138, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    16. Imen Khanchel & Naima Lassoued & Rym Gargoury, 2023. "CSR and firm value: is CSR valuable during the COVID 19 crisis in the French market?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(2), pages 575-601, June.
    17. Velásquez, Jorge Sepúlveda & Griñen, Pablo Tapia & Henríquez, Boris Pastén, 2022. "Emerging market dynamics in H1N1 and COVID-19 pandemics," Economics Letters, Elsevier, vol. 218(C).
    18. Wan, Zhao & Tian, Haowen, 2022. "The effect of the COVID-19 pandemic on information disclosure: Evidence from China," Economics Letters, Elsevier, vol. 217(C).
    19. Ryuichiro Izumi & Antonis Kotidis & Paul E. Soto, 2024. "Trademarks in Banking," Wesleyan Economics Working Papers 2024-004, Wesleyan University, Department of Economics.
    20. Agarwalla, Sobhesh Kumar & Varma, Jayanth R. & Virmani, Vineet, 2021. "The impact of COVID-19 on tail risk: Evidence from Nifty index options," Economics Letters, Elsevier, vol. 204(C).
    21. Babus, Ana & Das, Sanmay & Lee, SangMok, 2023. "The optimal allocation of Covid-19 vaccines," Economics Letters, Elsevier, vol. 224(C).
    22. De Marco, Filippo & Core, Fabrizio, 2021. "Information Technology and Credit: Evidence from Public Guarantees," CEPR Discussion Papers 15799, C.E.P.R. Discussion Papers.
    23. Jean-Noël Barrot & Basile Grassi & Julien Sauvagnat, 2020. "Estimating the Costs and Benefits of Mandated Business Closures in a Pandemic," Working Papers hal-02896739, HAL.
    24. Hanke, Michael & Kosolapova, Maria & Weissensteiner, Alex, 2020. "COVID-19 and market expectations: Evidence from option-implied densities," Economics Letters, Elsevier, vol. 195(C).
    25. Ospina-Forero, Luis & Granados, Oscar M., 2023. "A network analysis of the structure and dynamics of FX derivatives markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 615(C).

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    More about this item

    Keywords

    Contagion; Epidemic; Asset prices;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G1 - Financial Economics - - General Financial Markets
    • I1 - Health, Education, and Welfare - - Health

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