The market reactions to the 2019 novel Coronavirus event, a truly exogenous shock, can help our understanding of how real economic shocks and financial policies drive firm value. In “Feverish Stock Price Reactions to COVID-19,” Stefano Ramelli and Alexander F. Wagner find strong causal evidence for the role of international trade and global value chains for corporate value. Initially, internationally-oriented firms, especially those more exposed to China, underperformed. As the virus spread to Europe and the U.S., corporate debt and cash holdings emerged as important value drivers, relevant even after the Fed intervened in the bond market. Interestingly, the content and tone of analysts’ conference calls mirror these developments over time. Overall, the results illustrate how the anticipated real effects from the health crisis, a rare disaster, were amplified through financial channels. This paper published in the November 2020 Special Issue on the COVID-19 Pandemic Crisis and Corporate Finance.
Spotlight by Andrew Ellul
Photos courtesy of Stefano Ramelli & Alexander F. Wagner
First published June 18, 2020