The unprecedented stock market reaction to COVID-19

Scott R. Baker; Nicholas Bloom; Steven J. Davis; Kyle Kost; Marco Sammon; Tasaneeya Viratyosin

doi:10.1093/rapstu/raaa008

The unprecedented stock market reaction to COVID-19

Scott R. Baker^*, Nicholas Bloom, Steven J. Davis, Kyle Kost, Marco Sammon, Tasaneeya Viratyosin

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Review article › peer-review

843 Scopus citations

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.

Original language	English (US)
Pages (from-to)	742-758
Number of pages	17
Journal	Review of Asset Pricing Studies
Volume	10
Issue number	4
DOIs	https://doi.org/10.1093/rapstu/raaa008
State	Published - Dec 1 2020

Funding

We gratefully acknowledge financial support from the U.S. National Science Foundation [SES 1324257] and the University of Chicago's Booth School of Business.

ASJC Scopus subject areas

Finance
Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1093/rapstu/raaa008

Cite this

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The unprecedented stock market reaction to COVID-19

Abstract

Funding

ASJC Scopus subject areas

UN SDGs

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