Global Financial Crisis: Mere Dry Run for COVID-19?
12 Pages Posted: 13 May 2020
Date Written: May 13, 2020
This paper compares the stock and credit default swap market reactions to the COVID-10 announcement with the reaction to the Lehman bankruptcy, investigating the effects of both negative news and policy measures announcements by industry. We find that the CDS market reaction is not statistically different in the two outbreaks, implying a similar increase in average credit risk across firms. In stock markets, however, although the initial response is significantly larger for COVID, it is mitigated during the days after the shock, possibly because prices reflect a search for investment opportunities rather than credit risk.
Keywords: COVID-19, Lehman Brothers bankruptcy, Credit default swap, Stock markets, Policy
JEL Classification: G14, G15, G18, G19
Suggested Citation: Suggested Citation