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Finance and COVID-19

Paper Session

Friday, Jan. 7, 2022 10:00 AM - 12:00 PM (EST)

Hosted By: American Finance Association
  • Chair: Wenlan Qian, National University of Singapore

The Value of a Cure: An Asset Pricing Perspective

Viral Acharya
,
New York University, CEPR, and NBER
Timothy Johnson
,
University of Illinois
Suresh Sundaresan
,
Columbia University
Steven Zheng
,
University of California-Berkeley

Abstract

We provide an estimate of the value of a cure using the joint behavior of stock prices and a vaccine progress indicator during the ongoing COVID-19 pandemic. Our indicator is based on the chronology of stage-by-stage progress of individual vaccines and related news. We construct a general equilibrium regime-switching model of repeated pandemics and stages of vaccine progress wherein the representative agent withdraws labor and alters consumption endogenously to mitigate health risk. The value of a cure in the resulting asset-pricing framework is intimately linked to the relative labor supply across states. The observed stock market response to vaccine progress serves to identify this quantity, allowing us to use the model to estimate the economy-wide welfare gain that would be attributable to a cure. In our estimation, and with standard preference parameters, the value of the ability to end the pandemic is worth 5-15% of total wealth. This value rises substantially when there is uncertainty about the frequency and duration of pandemics. Agents place almost as much value on the ability to resolve the uncertainty as they do on the value of the cure itself. This effect is stronger – not weaker – when agents have a preference for later resolution of uncertainty. The policy implication is that understanding the fundamental biological and social determinants of future pandemics may be as important as resolving the immediate crisis.

Labor Force Telework Flexibility and Asset Prices: Evidence from COVID-19 Pandemic

Jack Favilukis
,
University of British Columbia
Xiaoji Lin
,
University of Minnesota
Ali Sharifkhani
,
Northeastern University
Xiaofei Zhao
,
Georgetown University

Abstract

We show that labor force telework flexibility (LFTF) is a first-order effect in accounting for the variations of asset prices and firm policies during the Covid-19 pandemic. Specifically, firms in high LFTF industries signficantly outperform firms in low LFTF industries in stock returns. The positive LFTF-return relation extends to G7 countries and is stronger in countries with more severe pandemic. A decomposition analysis of the LFTF measure shows that the job characteristics associated with the central component of telework, information and communication technologies, are the main driving force of the result. A dynamic neoclassical model of firms operating multiple job tasks together with pandemic shocks captures the relationship between labor force flexibility and stock returns. The model mechanism highlights that i) job task flexibility is a key driving force of the cross-industry heterogeneity in firm value fluctuations, and ii) combining labor productivity (supply) and uncertainty shocks is crucial to generate large drop and persistent recovery in firm value and output.

The Value of Big Data in a Pandemic

Kairong Xiao
,
Columbia University

Abstract

Although big data technologies such as digital contact tracing and health certification apps have been widely used to combat the COVID-19 pandemic, little empirical evidence regarding their effectiveness is available. This paper studies the economic and public health effects of the ``Health Code' app in China. By exploiting the staggered implementation of this technology across 322 Chinese cities, I find that this big data technology significantly reduced virus transmission and facilitated economic recovery during the pandemic. A Susceptible-Infectious-Recovered (SIR) model calibrated to the micro-level estimates shows that the technology reduced the economic loss by 0.5% of GDP and saved more than 200,000 lives by alleviating informational frictions during the COVID-19 outbreak.
Discussant(s)
Lars Lochstoer
,
University of California-Los Angeles
Miao Ben Zhang
,
University of Southern California
Tianyue Ruan
,
National University of Singapore
JEL Classifications
  • G0 - General