Health Risk and Stock Return: Evidence From <scp>SARS</scp> and <scp>COVID</scp> ‐19

ABSTRACT This study proposes a simple and practical approach to measure firm‐level health risk by examining stock performance during a prior crisis of a similar type. Using Chinese A‐share firms—the only major market significantly affected by both SARS and COVID‐19—we show that SARS returns robustly predict COVID‐19 returns, even after controlling for systematic risk, firm characteristics, survivorship, industry effects, and investor behavior. Further analysis indicates that both expected cash flow and discount rate channels contribute to such return predictability. By offering an easily implementable measure of health risk and providing out‐of‐sample evidence from a major non‐U.S. market, our study highlights the persistent role of health risk in firm valuation and extends the literature on pandemic‐related financial risk.