The project “Pandemic Tail Risk” by Matthijs Breugem, Raffaele Corvino, Roberto Marfè, and Lorenzo Schoenleber selected for funding by Inquire Europe

The project “Pandemic Tail Risk” by Matthijs Breugem (Collegio Carlo Alberto and University of Turin), Raffaele Corvino (University of Turin and CERP), Roberto Marfè (Collegio Carlo Alberto and University of Turin), and Lorenzo Schoenleber (Collegio Carlo Alberto and University of Turin) has been selected for funding by Inquire Europe, the Institute for Quantitative Research in Europe ( The purpose of Inquire Europe is to provide financial support for academic research projects which have the potential to yield useful insights for the field of investment management.

This project investigates the response of financial markets to the Covid-19 pandemic outbreak. The ongoing Covid-19 crisis highlights the importance of predicting and assessing the severity of a global pandemic. The authors build timely and forward-looking measures of tail risk, that is the investors’ fear of rare but large negative events. The project documents that financial markets are informative about pandemic risk well in advance of the actual outbreak and market crash. Specifically, while the tail risk of the market index did not respond before the outbreak of February 2020, the tail risk of less pandemic-resilient economic sectors boomed in advance. This result is robust to alternative specifications of tail risk measured from either option or credit default swap contracts.

Timely measurements of pandemic risk could help decision-makers–such as politicians, firm executives, and investors–to take appropriate and timely protective actions. Importantly, measurements of pandemic risk should inform about the economic impact of the pandemic and how does it spread in the economy and affect with different timing and severity several economic players. The authors document that investors anticipated the heterogeneous economic impact of both the pandemic and social distancing provisions across industries.

The project “Pandemic Tail Risk” benefited from an internal seed grant of Collegio Carlo Alberto for Covid-19 related works.