Journal
PACIFIC-BASIN FINANCE JOURNAL
Volume 67, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.pacfin.2021.101543
Keywords
Pandemic; Financial market; Capital asset pricing model; Capital pricing Income-featuring stochastic discount factor; Stochastic general equilibrium
Categories
Funding
- National Natural Science Foundation of China [71801117]
- Nanjing Audit University [20QNPY008]
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This paper introduces the IF-CAPM model to explain the impact of the SARS pandemic on asset prices, showing that it outperforms the traditional CAPM model in capturing structural changes in the financial market caused by the pandemic.
The SARS pandemic slowed down household income growth and negatively impacted the financial market. This paper extends the asset pricing literature by providing a new channel to explain the impact of the pandemic on asset prices. First, we propose an income-featuring consumption-based capital asset pricing model (IF-CAPM). Second, the empirical tests show that the IF-CAPM successfully captures structural changes brought about by the SARS pandemic on the financial market and the model performs better than the traditional CAPM.
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