The Value of a Cure: An Asset Pricing Perspective

Abstract

We estimate the value of ending a pandemic using the joint behavior of stock prices and a vaccine progress indicator during 2020. In a general equilibrium model, the observed market response to vaccine progress serves to identify the expected rate of loss of wealth during the pandemic, which pins down the economy-wide welfare gain attributable to a cure. With standard preference parameters, ending the pandemic is worth 5-15% of total wealth. This value rises with greater exposure externality in labor choice. With uncertainty about pandemic frequency and duration, resolving the uncertainty can be as valuable as the cure itself.