Market Reactions to the Arrival and Containment of COVID-19: An Event Study

Abstract

We study the short-term market reactions of US and European stocks during the beginning of the COVID-19 pandemic. Employing an event study, we document that stocks react significantly negatively to the announcement of the first death in a given country. While our results suggest that the announcements of country-specific fiscal policy measures negatively affect stock returns, monetary policy measures have the potential to calm markets. These reactions are either intensified or lessened by firm-specific characteristics such as tangible assets, liquidity, and institutional holdings.

Keywords: Market Efficiency, Coronavirus, COVID-19, Event Study, Policy Response, Crisis Stock Market

JEL Classification: G14, G18, E50, E52, E62