Abstract
The coronavirus disease 2019 (COVID-19) caused by a novel coronavirus, severe acute respiratory syndrome coronavirus 2, has caused a large death, a range of serious health problems, and significant economic costs in many countries around the world. This study analyzes statistical characteristics of pandemic disasters using historical records since the Middle Ages. Compared to literature which studies the effect of the COVID- 19 pandemic on the financial market, this paper attempts to find two financial instruments in the financial market to hedge pandemic risks. Two instruments could be useful for public health care schemes to increase their assets or decrease their liabilities during the pandemic period, namely, assets in the form of a biotechnology investment portfolio and liabilities in the form of pandemic bonds. Empirical results show the feasibility of such instruments and the informational efficiency of the U.S. stock market.
Highlights
A pandemic refers to an epidemic that has spread over several countries or continents
This study shows that pandemic bonds may reduce the revenue volatility of public health care schemes
This study shows that these stocks are highly correlated to the spread of the COVID-19 pandemic
Summary
An epidemic is defined as the rapid spread of disease in a large group of individuals beyond the normal level of infection that would be expected in a given population and region over a short period of time. A pandemic refers to an epidemic that has spread over several countries or continents. Compared with sudden catastrophic events (earthquakes, floods, hurricanes, and volcanic eruptions), epidemics and pandemics occur over a relatively long period, as there can be many months or even years between the beginning and the end of these health disasters. To date, the current coronavirus disease 2019 (COVID-19) outbreak has lasted over a year. There would be enough time to make use of financial instruments to hedge pandemic risk
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