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Using the Hubei province in China as the COVID‐19 pandemic epicenter and January 23, 2020 as the event date (the date the Chinese government announced the lockdown of Wuhan, the provincial capital), we document that while Chinese firms generally exhibited negative cumulative abnormal returns (CARs) around the event date, firms located far from the Hubei province experienced relatively less adverse impact by way of negative CARs than firms located close to and in the province. Moreover, firms that engaged strongly in corporate social responsibility (CSR) activities in terms of corporate donations prior to the event date experienced less of an adverse impact than those with no or weak CSR activities, suggesting that CSR serves an insurance‐like function that alleviates the adverse impact on stock returns precipitated by the negative investor sentiment stemming from COVID‐19. [ABSTRACT FROM AUTHOR]

Applying the market tail risk measure proposed by Kelly and Jiang in the China's A‐shares market, we find that the monthly market tail risk significantly and negatively predicts the monthly industrial output growth rate up to 1 year. In addition, from July 2007 to June 2019, we find that stocks with a higher tail risk outperform stocks with a lower tail risk by 0.62% (0.30% after risk adjustment) per month. Using the institutional holding weight within an industry and correlations in return on assets as proxies for the connectedness among stocks associated with firm fundamentals, and treating the sentiment risk and correlations in the three factor risk‐adjusted residuals as proxies for the connectedness among stocks associated with investor sentiment, we further show that the connectedness among stocks significantly affects individual stocks' tail risk and tail risk premium. Moreover, our findings show that the connectedness components of tail risk associated both with firm fundamentals and with investor sentiment can significantly and positively predict stock returns. Our finding suggests that the connectedness among stocks provides an important channel through which firm fundamentals and investor sentiment influence the tail risk premium in the China's A‐shares market. [ABSTRACT FROM AUTHOR]