Stock markets during COVID-19

Abstract

This paper reviews the literature that addresses the stock pricing implications of the COVID-19 outbreak. Stock prices dropped substantially in March 2020 as a reaction to the onset of the COVID-19 pandemic; however, they recovered quickly from April/May 2020. Markets only incorporated the pandemic risk from late February 2020. During the crisis period, both the discount rate and expectation of growth were the most important (but not the only) reasons for the movement of stock prices. The U.S. Federal Reserve interventions also helped markets to recover one-third of their lost returns during COVID-19. Finally, investors’ preferences and capital shifted to more ESG-friendly firms both during and after the crisis, implying that ESG firms performed well during the time of COVID-19.