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Disaster resilience and asset prices

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  • Pagano, Marco
  • Wagner, Christian
  • Zechner, Josef

Abstract

Using the COVID-19 pandemic as a laboratory, we show that asset markets assign a time-varying price to firms’ disaster risk exposure. The cross-section of stock returns reflected firms’ different exposure to the pandemic, as measured by their vulnerability to social distancing. As predicted by theory, realized and expected return differentials moved in opposite directions, initially widening and then narrowing. When inferred from market outcomes, firm resilience correlates mainly with exposure to social distancing: vulnerability to social distancing is priced in changes of firms’ expected returns, while measures of financial and environmental resilience are not.

Suggested Citation

  • Pagano, Marco & Wagner, Christian & Zechner, Josef, 2023. "Disaster resilience and asset prices," Journal of Financial Economics, Elsevier, vol. 150(2).
    • Handle: RePEc:eee:jfinec:v:150:y:2023:i:2:s0304405x23001447
    DOI: 10.1016/j.jfineco.2023.103712
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    More about this item

    Keywords

    Asset pricing; Rare disasters; Social distance; Resilience; Pandemics;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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