Stock Prices and Economic Activity in the Time of Coronavirus

Abstract

Stock prices and workplace mobility trace out striking clockwise paths in daily data from mid-February to late May 2020. Global stock prices fell 30% from 17 February to 12 March, before mobility declined. Over the next 11 days, stocks fell another 10 percentage points as mobility dropped 40%. From 23 March to 9 April, stocks recovered half their losses and mobility fell further. From 9 April to late May, both stocks and mobility rose modestly. This dynamic plays out across the 35 countries in our sample, with notable departures in China, South Korea and Taiwan. The size of the global stock market crash in reaction to the pandemic is many times larger than a standard asset-pricing model implies. Looking more closely at the world’s two largest economies, the pandemic had greater effects on stock market levels and volatilities in the USA than in China even before it became evident that early US containment efforts would flounder. Newspaper-based narrative evidence confirms the dominant—and historically unprecedented—role of pandemic-related developments in the stock market behavior of both countries.

The Interconnectedness of Stock Prices, Money, and Credit Across Time and Frequency From 1970 to 2016

“…Since this year, stock prices indexes continued their upward trend, which was sharply broken once the coronavirus pandemic spread outside China. Davis et al (2022) report that the value-weighted prices slumped by 40 percent between 17 February and 23 March in the advanced economies -a drop that is many times larger than any standard asset-pricing model would imply. Major central banks initiated purchases of financial assets at an unprecedented scale in a combat with the economic slowdown resulting from the COVID-19 pandemic.…”

“…Vicente and Araujo (2018) evidence that their leading indicators based on current stock returns have strong correlation with future economic conditions. Recently, Davis et al (2022) by analysing 35 sample countries argued that stock prices signalled the severity and the timing of the collapses of those countries' economic activity because of the Coronavirus pandemic. The importance of stock market for the real economy developments stems also from the fact that it helps to mobilize capital, which companies use to support investments and economic growth.…”

Effect ofCOVID‐19 Lockdown on the Profitability of Firms in India*

“…We build on the strand of literature that focuses on how COVID‐19 lockdowns affect firm performance. Most of the earliest papers have focused on the effect of COVID‐19 and lockdowns on the stock market performance of firms (Alfaro et al ., 2020; Bekaert et al ., 2020; Bretscher et al ., 2020; Davis et al ., 2022; Ding et al ., 2020; Zhang et al ., 2021). The broad consensus in this strand of literature is the slump in stock market returns due to COVID‐19 and the role of spread of virus, government restrictions and other policy actions in conditioning the impact.…”

Conservative Financial Reporting and Resilience to the Financial Crisis

“…About 20% of the companies were affected by government-mandated closures. The global economy had to embrace the losses of up to 40% in the stock markets in March 2020 [1].…”