Asset pricing during pandemic lockdown

Saito, Yuta; Sakamoto, Jun

doi:10.1016/j.ribaf.2021.101449

Cited by 8 publications

(7 citation statements)

References 17 publications

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“…We show that various patterns of stock price dynamics are realized according to the tightness of lockdown. As discussed in Section 4 , our model yields a negative relationship between asset price change and the tightness of lockdown, and this is consistent with the findings of recent empirical studies in the area, including Saito and Sakamoto ( 2021 ) and Scherf et al ( 2022 ). We also find that enforcing lockdown improves the welfare of both capitalists and sector A workers, but not necessarily sector B workers.…”

Section: Introductionsupporting

confidence: 91%

“…Here, we refer to an empirical implication of Proposition 4 . Using data from advanced countries, Saito and Sakamoto ( 2021 ) and Scherf et al ( 2022 ) report a negative relationship between the strictness of lockdown policy and asset price changes: the tighter the lockdown policy is, the lower the (average) stock prices become. Using the result for the average stock price change in Proposition 4 , our model explains this relation in light of the ambiguity aversion of asset holders.…”

Section: A Model With Lockdownmentioning

confidence: 99%

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Ambiguity in a pandemic recession, asset prices, and lockdown policy

Morimoto

Suzuki

2022

J Public Economic Theory

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Using an asset pricing model of a multisector production economy including pandemic disaster, we explain the average stock price boom and significant cross‐sectional variation of stock returns in the United States and Japan during the COVID‐19 pandemic recession. We find that two features of the pandemic, namely ambiguity and sector‐specific shocks, are critical determinants of the unusual asset price dynamics observed. Extending the model, we analyze the welfare effects of lockdown policy during pandemics for heterogeneous households. We theoretically show that enforcing a lockdown improves the welfare of asset holders and households working in sectors with positive sector‐specific shocks. Consequently, a Pareto‐optimal lockdown policy controls for the tightness of lockdown to maximize the welfare of households working in sectors with negative sector‐specific shocks.

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Section: Introductionsupporting

confidence: 91%

Section: A Model With Lockdownmentioning

confidence: 99%

Ambiguity in a pandemic recession, asset prices, and lockdown policy

Morimoto

Suzuki

2022

J Public Economic Theory

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Section: Introductionmentioning

confidence: 99%

“…Contrary to popular belief, after the COVID-19 pandemic-induced economic catastrophe, stock markets worldwide recovered even above their prior highs 16 despite stringent lockdown conditions. 17 Contemporary financial researchers attribute the causes of divergence between two markets to three elements 18–20 : asset markets are forward-looking, and thus high prices may simply reflect investors’ expectations of a quick end to the pandemic; the large companies represented in the major stock indices are immune to pandemic effects or may even benefit from them (e.g., Big Tech, Big Pharma, and Consumer goods); central bank intervention lending support to asset values. …”

Section: Introductionmentioning

confidence: 99%

Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance

Malhotra

Sinha

2023

Metamorphosis: A Journal of Management Research

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Since their inception in 2002, exchange-traded funds (ETFs) in India have made significant progress. The lacklustre record of active investing and the dual benefits of low-cost diversification have elevated the asset class’s credibility. During the COVID-19 crisis, equities ETFs have demonstrated greater resilience than other investment options. Our examination of 35 ETFs that mirror broader indices indicates the performance of Indian ETFs amid the economic shock caused by COVID-19. A comprehensive analysis of the daily NAV, trading price, and benchmark price data from 2015 to the present, post-identification of the pandemic period, indicates three significant inferences: First, tracking errors persist, with significant increases in all three tracking measures throughout the COVID-19 period. Second, during the COVID-19 period, the existence of pricing inefficiencies transitions from discount to premium, with an average daily value of 57.485. Nonetheless, the rate of short-term disequilibrium corrections accelerates dramatically during the COVID-19 phase. Thirdly, it took only eight days during COVID-19 to erase 50% of the disequilibrium between NAV and market price, compared to 170 days before COVID-19. During the COVID-19 era, we also notice a rise in the co-integration between ETF returns and benchmark performance and an increase in the adjustment rate from 18% to 61% per unit of time. The research findings provide portfolio managers and regulators with a comprehensive view of the performance of ETFs before and after an economic shock and offer educational benefits to a growing investor base.

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“…Saito and Sakamoto [ 7 ] study the effect of lockdown policies on asset prices. In the model, lockdown policies reduce precautionary savings by decreasing susceptible agents’ probability of getting infected in the future.…”

Section: Introductionmentioning

confidence: 99%

The role of vaccination in a model of asset pricing during a pandemic

Saito

2022

PLoS ONE

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This paper examines the effect of pandemic vaccination on asset prices in a simple asset pricing model à la Lucas 1978. In this model, asset prices depend on susceptible individuals’ saving motives to insure against a reduction in labour income due to getting they get the virus. Hence distributing vaccine reduces precautionary saving motives and asset prices. This implies that reducing the income gap between susceptible and infected individuals, such as by cash handouts, eases the negative effect of vaccine supply on asset prices.

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Asset pricing during pandemic lockdown

Abstract: Graphical abstract

Cited by 8 publications

References 17 publications

Ambiguity in a pandemic recession, asset prices, and lockdown policy

Ambiguity in a pandemic recession, asset prices, and lockdown policy

Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance

The role of vaccination in a model of asset pricing during a pandemic

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