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

Research output: Contribution to journalReview articlepeer-review

167 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 languageEnglish (US)
Pages (from-to)742-758
Number of pages17
JournalReview of Asset Pricing Studies
Volume10
Issue number4
DOIs
StatePublished - Dec 1 2020
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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