The Unprecedented Stock Market Reaction to COVID-19

By Scott R. Baker, Nicholas Bloom, Steven J. Davis, Kyle J Kost, M. Sammon, Tasaneeya Viratyosin. Review of Asset Pricing Studies, 2020

1,381 citations recorded by the source corpus.

Abstract No previous infectious disease outbreak, including the Spanish Flu, has affected 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 1918–1919, 1957–1958, and 1968.

Subfields: Economics and Econometrics, Soil Science

View Paper: https://www.semanticscholar.org/paper/9c39f945b7010a1bdc6d1c75dfd32bc2996bf19f

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In Economics and Econometrics

Citations in the corpus

Online Shopping Motives during the COVID-19 Pandemic—Lessons from the Crisis (2020, background): “Our sample is composed of 451 consumers from Germany.”
The pandemic and economic policy uncertainty (2020, background): “Alternatively, Baker et al. (2020) reveal that no disease in history has had such forceful impacts on the stock market as COVID-19.”
Stock Market Response during COVID-19 Lockdown Period in India: An Event Study (2020, result): “Baker et al. (2020) analyzed the role of COVID-19 developments in recent stock market behavior and compared with previous virus outbreaks.”
Economic uncertainty before and during the COVID-19 pandemic (2020, background): “See Altig et al. (2020b) for evidence that firm-level growth expectations in the SBU are highly predictive of realized growth rates, and that firm-level subjective uncertainty predicts the magnitudes of future forecast errors and future forecast revisions.”
Commodity price volatility and the economic uncertainty of pandemics (2020, background): “A number of recent works has emerged in the literature exploring the economic and market effects of pandemics (Baker et al., 2020a,b; Jordà et al., 2020; Ma et al., 2020; among others). Baker et al. (2020a) show the enormous negative effect of COVID-induced economic uncertainty on US real GDP, while”
The effects of a “black swan” event (COVID-19) on herding behavior in cryptocurrency markets (2021, positive): “Furthermore, there is an emerging field of literature comparing the impact of COVID-19 to that of past pandemics (Correia et al., 2020; Eichenbaum et al., 2020; Ma et al., 2020), and the reaction of financial markets to its growth and spread (Baker et al., 2020a, 2020b).”
The global effects of Covid-19-induced uncertainty (2020, background): “As pointed out by Baker et al. (2020a), the peak value of inancial volatility recorded in March 2020 is the highest in reent history, Great Recession included.”
Economic impact of government interventions during the COVID-19 pandemic: International evidence from financial markets (2020, neutral): “Second, we complement the recent studies which examine the impact of COVID-19 on financial markets (Al-Awadhi et al., 2020; Ali et al., 2020; Ashraf, 2020a; Baker et al., 2020; Haroon and Rizvi, 2020; Ramelli and Wagner, 2020; Schell et al., 2020; Zhang 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).”
COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach (2020, neutral): “In a recent study, Baker et al. (2020), Baker, Bloom, Davis, and Terry (2020) unveil that during the last 22 trading days (24 February to 24 March), 18 stock market jumps were recorded and 16 to 18 of them are perceived as a response to “bad news” attributed to either the new infectious disease or…”
Consumer Spending Responses to the COVID-19 Pandemic: An Assessment of Great Britain (2020, methodology): “Baker et al (2020c) note that news coverage of 12 Similarly, for the US, Alon et al (2020) suggest that employment losses arising from social distancing interventions has a larger impact on sectors with higher female employment shares.”