COVID-19: stock market reactions to the shock and the stimulus

ABSTRACT

Using the WHO announcement on 11 March 2020 and the Federal Reserve Bank announcement on 9 April 2020 as two events that represent the shock and the stimulus, this study finds that COVID-19 caused a negative shock to the global stock markets, especially in emerging markets and for small firms. We find that the US stock market experienced positive abnormal returns from the Fed stimulus compared to other developed countries and emerging markets. We find that the positive abnormal returns from the stimulus were garnered by the US large firms instead of the small firms.

KEYWORDS:

• COVID-19
• event study
• stimulus
• emerging markets
• small firms

JEL CLASSIFICATION:

• G14
• G15
• G18

Acknowledgments

The authors thank the anonymous reviewer for constructive comments and recommendations. Harjoto acknowledges the financial support and release time from the 2019-2021 Denney Academic Chair Endowment at Pepperdine Graziadio Business School. The authors also thank Victor Tsao and the Tsao Family Foundation for their financial support for the Bloomberg terminals at the Pepperdine Graziadio Business School.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Tsao Family Foundation and the Denney Endowment [2019-2021] at Pepperdine Graziadio Business School.