Aggregate and Firm-Level Stock Returns During Pandemics, in Real Time

By Laura Alfaro, Anusha Chari, Andrew Greenland, Peter K. Schott. Social Science Research Network, 2020

426 citations recorded by the source corpus.

We show that unexpected changes in the trajectory of COVID-19 infections predict US stock returns, in real time. Parameter estimates indicate that an unanticipated doubling (halving) of projected infections forecasts next-day decreases (increases) in aggregate US market value of 4 to 11 percent, indicating that equity markets may begin to rebound even as infections continue to rise, if the trajectory of the disease becomes less severe than initially anticipated. Using the same variation in unanticipated projected cases, we find that COVID-19-related losses in market value at the firm level rise with capital intensity and leverage, and are deeper in industries more conducive to disease transmission. These relationships provide important insight into current record job losses. Measuring US states' drops in market value as the employment weighted average declines of the industries they produce, we find that states with milder drops in market value exhibit larger initial jobless claims per worker. This initially counter-intuitive result suggests that investors value the relative ease with which labor versus capital costs can be shed as revenues decline.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/9d3a3a98e11c6f651d1e957f6d000e0b94d795db

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Citations in the corpus

In sickness and in debt: The COVID-19 impact on sovereign credit risk (2020, positive): “…et al., 2020 ), Treasury ( He et al., 2020; Fleming and Ruela, 2020; Schrimpf et al., 2020 ), stock ( Boudoukh et al., 2020; Ding et al., 2020; Alfaro et al., 2020; Croce et al., 2020a; Gerding et al., 2020; Ramelli and Wagner, 2020; Albuquerque et al., 2020; Bretscher et al., 2020;…”
Volatility in International Stock Markets: An Empirical Study during COVID-19 (2020, result): “Similar estimations have been made by researchers for individual countries like the US (Alfaro et al. 2020), Germany (Michelsen et al. 2020), China (Ruiz and Mario 2020), Saudi Arabia (Albulescu 2020), and many more.”
Consumer Spending Responses to the COVID-19 Pandemic: An Assessment of Great Britain (2020, background): “Alfaro et al (2020) find that day-to-day changes in forecasts of infectious disease during the SARS epidemic (in Hong Kong) and the COVID-19 pandemic (in the US) lead to significant changes in aggregate stock returns.”
Mutual Fund Performance and Flows during the COVID-19 Crisis (2020, neutral): “(2)For evidence at the aggregate stock market level, see, for example, Alfaro et al. (2020) and Gormsen and Koijen (2020). For cross-sectional evidence, see Bretscher, Hsu, and Tamoni (2020), Ding et al. (2020), Fahlenbrach, Rageth, and Stulz (2020), Gerding, Martin, and Nagler (2020), Pagano, Wagne”
Rethinking financial contagion: Information transmission mechanism during the COVID-19 pandemic (2020, positive): “Moreover, Alfaro et al. (2020) examined the relation between stock market price variability and the revisions of predicted infections from the epidemic model.”
Stock markets’ reaction to COVID-19: Cases or fatalities? (2020, positive): “Alfaro et al. (2020) used data from the US and found that equity market value declined in response to pandemics such as Covid-19 and SARS.”
Economic uncertainty before and during the COVID-19 pandemic (2020, background): “On what key parameter values imply in standard epidemiological models and extensions that incorporate behavioral responses to the disease and various testing, social distancing, and quarantine regimes, see Anderson et al. (2020), Atkeson (2020b), Berger, Herkenhoff and Mongey (2020), Eichenbaum, Reb”
Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1 (2020, positive): “In finance, several studies highlight the credit market access and liquidity consequences of the Covid-19 pandemic (Au et al. (2020); Ferrando (2020); Kargar et al. (2020); Ma et al. (2020); Ozik et al. (2020)). For example, Greenwald et al. (2020) argue, and show, that credit lines are central to t”
Market reactions to the arrival and containment of COVID-19: An event study (2020, positive): “Alfaro et al. (2020) employ unexpected changes in the trajectory of COVID-19 cases and show that an unanticipated doubling of predicted infections forecasts stock market declines.”
ESG Ratings and Stock Performance during the COVID-19 Crisis (2021, background): “Further, firms which face a lower exposure to the pandemic [55,56] as well as firms which are more immune to social distancing policies [57], exhibit better financial performance.”
Safe haven or risky hazard? Bitcoin during the Covid-19 bear market (2020, positive): “The ongoing Covid-19 pandemic and associated financial turbulence has led to a profusion of working papers, some examining cryptocurrency implications (Alfaro et al., 2020; Corbet et al., 2020a; 2020b; Jabotinsky and Sarel, 2020; Jana and Das, 2020).”
Economic impact of government interventions during the COVID-19 pandemic: International evidence from financial markets (2020, positive): “Focusing on stock market returns, Alfaro et al. (2020) use data from the US and found that equity market value declined in response to pandemics such as COVID-19 and SARS.”