This paper provides an innovative theoretical model and empirical evidence for how firm-level pandemic exposure, as an informational shock, increases a firm's credit spread and default risk. We find a positive relationship between pandemic exposure and single-nameCDS spreads, and this empirical relation remains under robustness checks and after controlling for endogeneity. The effect of pandemic risk is more pronounced for firms with more leverage. COVID-19 exposure has a much more significant economic impact on credit spreads than the past pandemics. We also find firm-level pandemic risk reduces CDS spread slope and increases credit spread volatility.
(Joint work with Ran Zhao)
Dr. Michael Imerman is an Assistant Professor of Finance at the Drucker School of Management in Claremont Graduate University where he also serves as Co-Director of the Financial Engineering Program. Professor Imerman's primary research areas include credit risk modeling, banking, FinTech, and financial regulation. He is particularly interested in the interplay among risk management, innovation, and regulation in the financial system. These interests have led him to examine diverse areas in finance from credit derivatives to bank capital and from securitization to disruptive financial technologies.
Prior to coming to Claremont, Professor Imerman was was a faculty member at Lehigh University, where he was Assistant Professor of finance and held the Theodore A. Lauer Distinguished Chair of Investments. His undergraduate and doctoral degrees are from Rutgers University and in 2011-2012 he was an NSF-funded Postdoctoral Research Associate at Princeton University in the Department of Operations Research and Financial Engineering. At Princeton, Dr. Imerman worked in high-dimensional statistical analysis, high-frequency econometrics, and financial data science.
Before pursuing a career in academia Imerman has worked on Wall Street, with a stint at Lehman Brothers from 2004 to 2005. He currently maintains a consulting practice where he advises companies ranging from large established financial firms to FinTech startups. Additionally, Dr. Imerman is on the Editorial Boards of the Journal of Financial Data Science and the annual journal Advances in Quantitative Analysis of Finance & Accounting.