Risk contagion of COVID–19 in Japanese firms: A network approach

Kanno, Masayasu

The novel coronavirus disease (COVID–19) is one of the worst pandemics in human history. Our research objective is to assess the contagion effect on Japanese firms and to evaluate the Japanese government's COVID–19 measures during the period from April 7, 2020, to May 25, 2020. We propose a susceptible-infected-recovered-dead model for COVID–19 and derive COVID–19 parameters for Japan. Subsequently, we analyze the effect of COVID–19 on Japanese firms through correlation-based network and credit risk analyses. The main findings are that the Tokyo Stock Price Index moved in the opposite direction of COVID–19 parameters and COVID–19 parameters are almost the only risk factors that impact a firm's credit risk during the period. Finally, we find that the interconnection analysis between the COVID–19 infection network and the financial networks contribute to the existing pandemic risk management knowledge.