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

32 Pages Posted: 27 Mar 2020 Last revised: 12 May 2020

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Anusha Chari

University of North Carolina (UNC) at Chapel Hill - Department of Economics; National Bureau of Economic Research (NBER); University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Andrew Greenland

Elon University - Department of Economics

Peter Schott

Yale University

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Date Written: March 25, 2020

Abstract

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.

Keywords: COVID-19, Coronavirus, Jobless Claims, Stock Returns, Equity Markets, Labor Markets, Pandemic, Epidemiology

JEL Classification: G14, G17, I18, F62, F61, J20, R12

Suggested Citation

Alfaro, Laura and Chari, Anusha and Greenland, Andrew and Schott, Peter, Aggregate and Firm-Level Stock Returns During Pandemics, In Real Time (March 25, 2020). Available at SSRN: https://ssrn.com/abstract=3562034 or http://dx.doi.org/10.2139/ssrn.3562034

Laura Alfaro

Harvard University ( email )

Cambridge, MA 02138
United States

Anusha Chari

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

McColl Building
Chapel Hill, NC 27599-3490
United States

Andrew Greenland (Contact Author)

Elon University - Department of Economics ( email )

Elon, NC 27244
United States

Peter Schott

Yale University ( email )

New Haven, CT 06520
United States

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