The Review of Asset Pricing Studies Vol. 10 No. 4 2020

The Unprecedented Stock Market Reaction to COVID-19

Scott Baker¹; Nicholas Bloom²; Steven J. Davis³; Kyle Kost⁴; Marco Sammon¹; Tasaneeya Viratyosin⁵

¹ Kellogg School of Management, Northwestern University · ² Stanford University · ³ Chicago School of Business, University of Chicago · ⁴ University of Chicago · ⁵ Wharton School of Business, University of Pennsylvania

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.

DOI

10.1093/rapstu/raaa008

Volume

10

Issue

4

Pages

742-758

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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