Cash-Flow Risk During Downturns: Industry Response to COVID-19 Pandemic
36 Pages Posted: 3 Apr 2020 Last revised: 30 Apr 2020
Date Written: April 5, 2020
The COVID-19 pandemic has caused a negative shock to aggregate consumption. The central question addressed in this paper is how US industries react to this negative shock. The industry long-term cash-flow risk measured using data until 2018 predicted which US industries will perform the worst during the current COVID-19 pandemic and the 2008-2009 global financial crisis. I show that industries with a high cash-flow risk have experienced abnormally low excess returns, high systematic risk and low risk-adjusted returns during the first three months of 2020. This paper contributes to the recognition of cash-flow risk as an important driver and predictor of equity risk and returns during market downturns.
Keywords: COVID-19 pandemic, financial crises, US industry analysis, consumption shocks
JEL Classification: G01, G12
Suggested Citation: Suggested Citation