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

33 Pages Posted: 6 Apr 2020 Last revised: 27 Jun 2021

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

Multiple version iconThere are 2 versions of this paper

Date Written: April 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.

Suggested Citation

Alfaro, Laura and Chari, Anusha and Greenland, Andrew and Schott, Peter, Aggregate and Firm-Level Stock Returns During Pandemics, in Real Time (April 2020). NBER Working Paper No. w26950, Available at SSRN: https://ssrn.com/abstract=3569414

Laura Alfaro (Contact Author)

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

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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