Coronavirus disease (COVID‐19) has already devastated the world, and the economy becomes the most critical challenge for any country worldwide. The increasing uncertainty of the COVID‐19 outbreak has made stock markets in China more turbulent and less predictable. Under the current exceptional circumstances, the hospitality industry suffered the most due to the travel restrictions. This research thus assesses the dynamic relationship among the COVID‐19 outbreak, macroeconomic fluctuations and hospitality stock returns based on a structural VAR framework from 13 January to 11 May 2020, in China. Evidence reveals that macroeconomic fluctuations and hospitality stock returns are significantly affected by shocks from the COVID‐19 outbreak. An unanticipated positive change of the COVID‐19 explosion triggers an addition in exchange rates and causes a reduction in the stock market and hospitality industry returns. For the impacts of the exchange rate, findings reveal that a surprise increase in exchange rates (currency depreciation) exerts a significant negative influence on stock market returns. Additionally, a positive change of stock market returns is linked to a decline in exchange rates and a rise in hospitality industry returns. Therefore, knowledge of these relationships can enable policymakers to evaluate and implement effective policies to stabilize the stock markets and help investors to make appropriate investment strategies.