Feverish Stock Price Reactions to COVID-19

Courtesy of Stefano Ramelli* and Alexander F. Wagner**

The outbreak of COVID-19 took the world economy by surprise. The topic ‘‘infectious diseases’’ was ranked number 10 in terms of impact in the World Economic Forum’s Global Risk Report 2020, published on January 15, 2020, but was considered quite unlikely. Instead, most corporate decision-makers and politicians were focusing their attention on traditional sources of business risks and pressing environmental issues.

Only a few weeks later, attention shifted dramatically. On March 11, the World Health Organization characterized COVID-19 as a pandemic. Massive disruptions in personal lives are taking place in many countries, with half of the world’s population currently under curfew (or situations resembling curfew). Beyond the immediate tragedies of death and disease, fear is widespread and uncertainty is extreme.

The future economic impact of COVID-19 is highly uncertain because the spread of the disease, its severity and mortality rate, the policy responses, and individual behaviour are largely still unknown.

An important tool for understanding the expected consequences of events like the emergence of COVID-19 is to consider asset price changes. These price changes capture current expectations. In essence, asset markets provide ongoing, high-stakes surveys regarding future expected outcomes.

Incubation, Outbreak, and Fever

In a recent working paper, we provide a first examination of the stock price reactions of US companies to the outbreak of the novel Coronavirus. We investigate three periods, which we label Incubation (Thursday, January 2 through Friday, January 17), Outbreak (Monday, January 20 through Friday, February 21), and Fever (From Monday, February 24 through March 20).

  • Incubation: On December 31, 2019, cases of pneumonia detected in Wuhan, China, were first reported to the WHO, and on January 1, 2020, Chinese health authorities closed the Huanan Seafood Wholesale Market after it was discovered that wild animals sold there may be the source of the virus. The first trading day after these events was January 2, 2020


  • Outbreak: On January 20, Chinese health authorities confirmed human-to-human transmission of the Coronavirus, and the WHO issued the first situation report on the outbreak.


  • Fever: On Sunday, February 23, Italy placed almost 50,000 people under strict lockdown in Lombardy (one of the most populated and productive regions in Europe) in an attempt to control the outbreak after registering its first deaths from Coronavirus on Saturday, February 22. Extraordinary events followed, too numerous to list here. The President of the United States announced a travel ban on EU countries on March 11 and declared the COVID-19 outbreak a national emergency on March 13. Extreme market volatility occurred in this period.

The events initiating the Outbreak and Fever periods markedly changed the attention of market participants. Figure 1 shows that in earnings conference calls, corporate managers and analysts started paying attention to the novel Coronavirus after January 20 only. The first conference call discussing either of the keywords ‘‘coronavirus,’’ ‘‘covid-19,” ‘‘2019-ncov,’’ or ‘‘sars-cov-2’’ took place on January 22. The fraction of firms discussing these topics increased markedly over time, to around 30% at the end of the Outbreak period. When the Fever period began, that fraction increased to approximately 50%, and by now essentially all calls cover the topic.

The global Google search intensity on Coronavirus massively increased after January 20. It subsided somewhat after its interim peak at the end of January. When the Fever period started, the search intensity spiked.

Figure 1: Attention to Coronavirus

Investors worry about trade and debt

We begin with an analysis of industry-level returns over all three periods combined. Telecom services, food and staples retailing, and utilities performed relatively well. Energy, consumer services, and transportation were among the biggest losers. As an ominous sign that the crisis is potentially wide-reaching, in the Fever period consumer services were the biggest losers, and food and staples retailers were the strongest winners.

Our main focus is on two firm-specific factors: international trade exposure and corporate debt.

First, we employ data on US firms’ international exposure from Hoberg and Moon (2017). These authors analyze 10-Ks for annually updated firm disclosures regarding their international activities, counting the number of times each country is mentioned, distinguishing between input reliance and exposure to the export market. More export or supply chain exposure to China resulted in substantially lower cumulative abnormal returns (CARs). A one standard deviation higher China exposure is associated with 2.1% lower CARs in the Incubation and Outbreak periods combined. Investors seem to have penalized not only firms trading with China, but also international exposure more generally. A one standard deviation increase in the share of foreign revenues is associated with 1.64% lower CARs, net of the effect of China exposure.

Figure 2 plots the sensitivity, over time, of CAPM-adjusted returns per one-time mention of China in a firm’s disclosure of its international activities and a one percent increase in foreign revenues, respectively. Interestingly, as for China exposure, about a third of the overall effect until the end of the Outbreak period was actually realized in the first part of January. Thus, it is conceivable that sophisticated investors started pricing in the concerns about supply chain disruptions during the Incubation period. It is notable that these asset price changes occurred at a time when firms exporting to China should, in principle, have done comparatively well, given the arguably good news contained in the ‘‘Phase 1’’ trade agreement between China and the US, signed on January 15.

Figure 2: Stock prices and international exposure, January 2 through March 20, 2020

In the Fever phase concerns about corporate debt (leverage) and corporate liquidity (cash holdings) started to play an important role, as seen in Figure 3. Within the same industry and controlling for standard firm characteristics, more leveraged firms and those with little cash holdings suffered severely—even those with little or no international activities. This finding suggests that investors perceived the real shock and business uncertainty caused by the outbreak of COVID-19 to be amplified by financial channels.

Figure 3: Stock prices, debt, and cash holdings, January 2 through March 20, 2020

Concerns around international exposure and capital structure in the Outbreak and Fever periods are visible not only in stock returns, but also in managerial and analyst communication. In these phases, the conference calls of more internationally exposed and leveraged firms covered Coronavirus-related issues more frequently and with a higher level of overall negativity. The pattern of these results is in line with that observed through the cross-section of stock returns.


Overall, our analyses indicate that while the Incubation and Outbreak periods saw investors price in the effects of the evolving health crisis on international trade, the Fever period brought about a switch in investor concerns to broader systemic issues, presumably also in light of pre-existing fragilities in the financial markets.

The focus of our paper is diagnosing the impact of COVID-19 on financial markets. A detailed evaluation of treatments needs to await future analyses. However, ”beyond-study-period’” events do suggest that some policy interventions helped in reassuring investors that the further propagation of financial stress would be softened. Specifically, on March 23 the Federal Reserve Board announced two new facilities to support credit to large corporations, and on March 27 the US government approved a $2 trillion relief bill into law. Over that week, investor concerns about corporate debt and liquidity revealed by the cross-section of stock returns partially reversed. The concerns remain, however, at high levels.

Our work looks at stock price effects, which capture the expectations of market participants regarding future economic consequences. Other research has to examine the realized consequences of the novel Coronavirus. The combination of this research will inform policymakers, investors, and businesses in their responses to the emergency (and hopefully help prepare for future emergencies).



*Stefano Ramelli

Stefano Ramelli is a fourth-year PhD candidate in Banking and Finance at the University of Zurich. His main areas of research and expertise are corporate finance and governance, climate finance, and sustainable finance. He completed studies in business and economics in his hometown Milan, and received an M.Sc. in economics from the University of Edinburgh. He has several years of professional experience in corporate governance analysis and responsible investments.


**Alexander F. Wagner

Alexander Wagner is an associate professor of finance at the University of Zurich and Senior Chair of the Swiss Finance Institute. He holds a Ph.D. in Political Economy and Government from Harvard University. He is CEPR Research Fellow and an ECGI Research Associate. In his hometown Linz, Austria, he completed studies in economics and law. Alex is an expert in corporate governance, behavioral economics and finance, and political economy. He served as an independent counsel for PricewaterhouseCoopers and as chairman of the board of trustees of SWIPRA.

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