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  • Review of Asset Pricing Studies

The Unprecedented Stock Market Reaction to COVID-19

By: Scott Baker, Nicholas Bloom, Steven J. Davis, Kyle Kost, Marco Sammon and Tasaneeya Viratyosin
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Abstract

No previous infectious disease outbreak, including the Spanish Flu, has impacted 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 1918-19, 1957-58 and 1968.

Keywords

COVID-19; Stock Market; Health Pandemics; Governance; Policy; Financial Markets

Citation

Baker, Scott, Nicholas Bloom, Steven J. Davis, Kyle Kost, Marco Sammon, and Tasaneeya Viratyosin. "The Unprecedented Stock Market Reaction to COVID-19." Review of Asset Pricing Studies 10, no. 4 (December 2020): 742–758.
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About The Author

Marco Sammon

Finance
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  • The Disappearing Index Effect By: Robin Greenwood and Marco Sammon
  • The Retail Habitat By: Toomas Laarits and Marco Sammon
  • Retail Investors’ Contrarian Behavior Around News, Attention, and the Momentum Effect By: Cheng (Patrick) Luo, Enrichetta Ravina, Marco Sammon and Luis M. Viceira
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