The Unprecedented Stock Market Impact of COVID-19

By Scott R. Baker, Nicholas Bloom, Steven J. Davis, Kyle J Kost, M. Sammon, Tasaneeya Viratyosin. 2020

810 citations recorded by the source corpus.

No previous infectious disease outbreak, including the Spanish Flu, has impacted the stock market as forcefully as the COVID-19 pandemic. In fact, previous pandemics left only mild traces on the U.S. stock market. We use text-based methods to develop these points with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. We also evaluate potential explanations for the unprecedented stock market reaction to the COVID-19 pandemic. The evidence we amass suggests that government restrictions on commercial activity and voluntary social distancing, operating with powerful effects in a service-oriented economy, are the main reasons the U.S. stock market reacted so much more forcefully to COVID-19 than to previous pandemics in 1918-19, 1957-58 and 1968.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/1ba5ba38be2ef4eb87c88483c5cc570a4981062c

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Citations in the corpus

COVID‐19 impact, sustainability performance and firm value: international evidence (2021, neutral): “Despite the general decline in share prices and dramatic stock market volatility worldwide (Baker et al., 2020a, 2020b), commentators observe that companies with a focus on sustainability have tended to outperform others (BlackRock, 2020; Gilchrist, 2020; Schroders, 2020).1 Based on our stakeholder…”
COVID-19 and financial market efficiency: Evidence from an entropy-based analysis (2021, background): “Baker et al. (2020) examine the response of US equity indices to COVID-19 development. Goodell and Goutte (2020) examine the co-movement of Bitcoin price with COVID-19. Conlon and McGee (2020) and Conlon et al. (2020) examine the performance of cryptocurrency markets as safe haven for equity markets”
Which Firm-specific Characteristics Affect the Market Reaction of Chinese Listed Companies to the COVID-19 Pandemic? (2020, background): “As Baker et al. (2020) point out, no previous infectious disease outbreak, including Spanish Flu, impacted the stock market as powerfully as the COVID-19 pandemic.”
Inequality in the impact of the coronavirus shock: Evidence from real time surveys (2020, background): “…(Baker et al. 2020b), business closures (Bartik et al. 2020), worries regarding the aggregate economy (Fetzer et al. 2020), household spending (Baker et al. 2020c; Carvalho et al. 2020), and labor market impacts in specific countries relying on administrative data (Cajner et al. 2020), data…”
COVID-19: stock market reactions to the shock and the stimulus (2020, positive): “Baker et al. (2020) examine the US stock market volatility based on the daily headlines of news and find that COVID-19 has an unprecedented effect on stock market volatility, especially after 24 February 2020.”
Structural Breaks in Interactive Effects Panels and the Stock Market Reaction to COVID-19 (2021, background): “By February, however, COVID-19 started to dominate newspaper discussions of the economy, and by March, almost all such discussions were about COVID-19 (Baker et al. 2020).5 Stock markets responded violently.”
COVID-19 pandemic and unemployment dynamics in European economies (2021, background): “The overall panic among consumers and firms has distorted the established consumption patterns and created market anomalies (Baker et al., 2020).”
Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1 (2020, neutral): “…firm-level measure of exposure to epidemic diseases, as one example of such a macro shock, and (2) to identify whether the firm-level exposure to the shock relates to 1See Baker et al. (2020) and Ramelli and Wagner (2020) for an early discussion of the stock market response to Covid-19.”
Viewpoint: The impact of coronavirus on service ecosystems as service mega-disruptions (2020, background): “Unlike earlier pandemics and epidemics that led to short-lived spikes in volatility in financial markets, COVID-19 had an impact on businesses around the world and created a sizeable contribution to global financial market volatility and loss (Baker et al., 2020).”
Infectious disease pandemic and permanent volatility of international stock markets: A long-term perspective (2020, positive): “The monthly data is the Infectious Disease Equity Market Volatility Tracker (EMV-ID) constructed by Baker et al. (2020).”
Does COVID-19 open a Pandora's box of changing the connectedness in energy commodities? (2020, positive): “Moreover, Baker et al. (2020b) even pointed out that the impact of COVID-19 also has the characteristics of a crisis period.”
Efficiency of the financial markets during the COVID-19 crisis: Time-varying parameters of fractional stable dynamics (2020, positive): “According to several empirical studies, financial markets have indeed been strongly disturbed during this period [3, 5, 34, 62].”
The COVID-19 outbreak and stock market reactions: Evidence from Australia (2020, positive): “Baker et al. (2020) report that the COVID-19 has affected the stock market most powerfully among all infectious disease outbreaks since 1900.”