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Feverish Stock Price Reactions to COVID-19

Author

Listed:
  • Stefano Ramelli

    (University of Zurich - Department of Banking and Finance)

  • Alexander F. Wagner

    (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute)

Abstract

This paper studies how markets adjust to the sudden emergence of previously neglected risks. It does so by analyzing the stock price effects of the 2019 novel Coronavirus disease (COVID-19) pandemic. The telecom and health care industries did relatively well, while transportation and energy plummeted. Within industries, US firms reliant on Chinese inputs and those with a strong export orientation towards China suffered. Sophisticated investors appear to have started pricing in the effects of the virus already in the first part of January (the "Incubation" phase), that is, before managers or analysts started paying attention; the first earnings conference call that contained a discussion of "Coronavirus" took place on January 22. The "Outbreak" phase followed, during which China-oriented stocks and internationally oriented stocks more generally strongly underperformed. In the last week of February and early March (the "Fever" phase), the aggregate market first fell strongly and then entered a whipsaw pattern. But behind these feverish and seemingly behaviorally-driven price moves, some patterns emerge. In particular, investors became increasingly worried about corporate debt and liquidity, indicating widespread concerns that the health crisis may evolve into a financial crisis.

Suggested Citation

  • Stefano Ramelli & Alexander F. Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," Swiss Finance Institute Research Paper Series 20-12, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2012
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Behavioral finance; Corporate debt; Coronavirus; COVID-19; Earnings conference calls; Event study; Global Value Chains; Neglected risks; Pandemic; SARS-CoV-2; Supply Chains;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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