Highlights

  • Prior to 2020, few if any risk managers were asking: what happens to equities in a pandemic scenario? Alas, the Pandemic Factor is here.
  • The authors define the Pandemic Factor as losses due to long positions in companies that experience extreme difficulty in a pandemic scenario, and short positions in those companies that stand to benefit from a pandemic scenario.
  • The authors use quantitative methods to isolate “Pandemic Factor” dynamics, with a focus on abnormal return dynamics and the long-term potential consequences of the Covid-19 economic shock.

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