Coronavirus: Impact on Stock Prices and Growth Expectations

By N. Gormsen, Ralph S. J. Koijen. Review of Asset Pricing Studies, 2020

565 citations recorded by the source corpus.

Abstract We use data from aggregate stock and dividend futures markets to quantify how investors’ expectations about economic growth evolved across horizons following the outbreak of the novel coronavirus (COVID-19) and subsequent policy responses until July 2020. Dividend futures, which are claims to dividends on the aggregate stock market in a particular year, can be used to directly compute a lower bound on growth expectations across maturities or to estimate expected growth using a forecasting model. We show how the actual forecast and the bound evolve over time. As of July 20th, our forecast of annual growth in dividends points to a decline of 8% in both the United States and Japan and a 14% decline in the European Union compared to January 1. Our forecast of GDP growth points to a decline of 2% in the United States and Japan and 3% in the European Union. The lower bound on the change in expected dividends is -17% in the United States and Japan and -28% in the European Union at the 2-year horizon. News about U.S. monetary policy and the fiscal stimulus bill around March 24 boosted the stock market and long-term growth but did little to increase short-term growth expectations. Expected dividend growth has improved since April 1 in all geographies.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/4f537341753b29bb922980eb08b0a319aa0d3d9c

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Working Remotely and the Supply-Side Impact of COVID-19 (2020, unknown): “…2020; Borjas and Cassidy 2020; Couch, Fairlie, and Xu 2020); firm revenue, earnings and dividends, (Barrero et al. 2021; Landier and Thesmar 2020; Gormsen and Koijen 2020); firm exit (Bartik et al. 2020); stockmarket performance (Ding et al. 2021; Giglio et al. 2020; Baker et al. 2020); or…”
Financial markets under the global pandemic of COVID-19 (2020, background): “However, these policies may create inconsistencies between investors’ short-term and long-term expectations (Gormsen and Koijen, 2020).”
COVID-19 and Stock Market Volatility (2020, unknown): “There is a small but quickly growing literature on the impact of Covid-19 on the stock market (e.g., Gormsen & Koijen (2020), Yilmazkuday (2020), and Baker et al. (2020).”
Does the Indian Financial Market Nosedive because of the COVID-19 Outbreak, in Comparison to after Demonetisation and the GST? (2020, background): “…2020; Ali, Alam, and Rizvi 2020; Apergis and Apergis 2020; Barro, Ursúa, and Weng 2020; Donadelli, Kizys, and Riedel 2017; Gil-Alana and Monge 2020; Gormsen and Koijen 2020; Granger, Huang, and Yang 2000; Haroon and Rizvi 2020; Ichev and Baker Marinc 2018; Lagoarde-Segot and Leoni 2013; Narayan…”
Poverty and economic dislocation reduce compliance with COVID-19 shelter-in-place protocols (2020, unknown): “Though the economic consequences of these policies are substantial ( Goolsbee and Syverson, 2020; Stapleton, 2020; Baker et al., 2020; Gormsen and Koijen, 2020 ), local non-compliance creates public health risks and may contribute to regional spread ( Lewnard and Lo, 2020; Chen et al., 2020 ).”
The impact of COVID-19 on emerging stock markets (2020, unknown): “In addition, recent studies indicate that the risk level of all countries increased dramatically in March when COVID-19 spread to more than 200 destinations (Gormsen and Koijen, 2020; Zhang et al., 2020).”
Market reactions to the arrival and containment of COVID-19: An event study (2020, background): “The recent changes in asset prices (Gormsen and Koijen, 2020) and expectations (Coibion et al., 2020; Hanspal et al., 2020) suggest that the pandemic’s effects are not regarded to be temporary (Zechner et al., 2020).”