Raffaele Corvino (University of Torino & CeRP), Matthijs Breugem, Roberto Marfè, and Lorenzo Schoenleber (University of Torino & Collegio Carlo Alberto) are the recipients of a 10000€ grant from Inquire Europe – Institute for quantitative investment research for their project “Pandemic Tail Risk”. The purpose of Inquire Europe is to encourage the use of the practical application of advanced quantitative methods in investment management.
In this project, the authors focus on understanding how the tail risk (i.e., risk of extreme events) of US equity markets is informative about pandemic risk well in advance of the actual COVID-19 outbreak in February 2020. The analysis documents that some economic sectors display a remarkable increase in the tail risk measures in early February. Thus, the pandemic tail risk did spread through some economic sectors well before the rise of market tail risk and in advance of the realized market crash.
The project will shed light on the investors’ assessment of pandemic tail risk exploiting information embedded in option contracts and credit default swaps and the investors’ expectations about the persistence of the economic impact and market turmoil due to the Covid-19 outbreak.
The project “Pandemic Tail Risk” also benefited from an internal seed grant of Collegio Carlo Alberto for Covid-19 related works.