Feverish Stock Price Reactions to the Novel Coronavirus
35 Pages Posted: 9 Mar 2020
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
Date Written: March 6, 2020
Abstract
This paper studies how markets adjust to the sudden and rapid emergence of previously neglected risks. It does so by analyzing the stock price effects of the 2019 novel Coronavirus (COVID-19) outbreak. In the last week of February 2020, many markets fell by 10% or more. The first week of March saw extreme levels of volatility worldwide. However, before these feverish whipsaw movements, we find that the market responded in a relatively orderly fashion by weighting the economic consequences of the evolving outbreak. Over the first two months of 2020, the health care industry did relatively well in China, the US, and several other countries. Transportation and Energy plummeted everywhere. Within industries, US stocks strongly exposed to the China supply chain and those with a strong export orientation towards China suffered.
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