The role of vaccination in a model of asset pricing during a pandemic.

This paper examines the effect of pandemic vaccination on asset prices in a simple asset pricing model à la Lucas 1978. In this model, asset prices depend on susceptible individuals' saving motives to insure against a reduction in labour income due to getting they get the virus. Hence distributing vaccine reduces precautionary saving motives and asset prices. This implies that reducing the income gap between susceptible and infected individuals, such as by cash handouts, eases the negative effect of vaccine supply on asset prices.

Asset pricing during pandemic lockdown.

This paper examines the implications of lockdown policies during early stages of pandemics for asset prices. We build a simple susceptible-infected-recovered model with microeconomic foundations, which allows us to obtain qualitative results with economic implications. In our model, lockdown policies reduce (i) labour income by decreasing working hours and (ii) precautionary savings by decreasing susceptible agents' probability of getting infected in the future. We qualitatively show that strengthening lockdown measures negatively impacts asset prices at the time of implementation. Our empirical analysis using data from advanced countries supports this finding. Depending on parameter values, our numerical analysis displays a V-shaped recovery of asset prices and an L-shaped recession of consumption. The rapid recovery of asset prices occurs only if the lockdown policies are insufficiently stringent to reduce the number of new periodic cases. This finding implies the possibility that lenient lockdowns have contributed to rapid stock market recovery at the beginning of the COVID-19 pandemic.