Discussion paper

DP14773 Disaster Resilience and Asset Prices

This paper investigates whether the stock market prices the effect of social dis-
tancing on firms' operations. We document that firms that are more resilient to
social distancing signifcantly outperformed those with lower resilience during
the COVID-19 outbreak, even after controlling for the standard risk factors.
Similar cross-sectional return differentials already emerged before the COVID-
19 crisis: the 2014-19 cumulative return differential between more and less
resilient firms is of similar size as during the outbreak, suggesting growing
awareness 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
firms are expected to yield signifcantly lower returns than less resilient ones,
reflecting their lower exposure to disaster risk. Hence, going forward, markets
appear to price exposure to a new risk factor, namely, pandemic risk.


Zechner, J, M Pagano and C Wagner (2020), ‘DP14773 Disaster Resilience and Asset Prices‘, CEPR Discussion Paper No. 14773. CEPR Press, Paris & London. https://cepr.org/publications/dp14773