Abstract
The COVID‐19 pandemic has increased fear of a financial market crash in China. We use an implied volatility slope measure, which proxies the cost of option protection against and therefore trader's fear of crash risk, using the Shanghai Shenzhen CSI 300 Index options. We show that this measure is positively related to new cases and deaths of the pandemic during the COVID‐19 outbreak in China. Option traders are willing to pay more for hedging downside tail risk as the pandemic worsens, and are no longer as concerned by news of cases and deaths after the lift of the lockdown.
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