COVID-19 and the cross-section of equity returns: impact and transmission

Bretscher, L, Hsu, A, Simasek, P and Tamoni, A (2020) COVID-19 and the cross-section of equity returns: impact and transmission. Review of Asset Pricing Studies, 10 (4). pp. 705-741. ISSN 2045-9920

Abstract

Using the first reported case of COVID-19 in a given U.S. county as the event day, we find that firms headquartered in an affected county experience, on average, a 27-bps lower return in the 10-day post-event window. This negative effect nearly doubles in magnitude for firms in counties with a higher infection rate (−50 bps). We test a number of transmission channels. Firms belonging to labor-intensive industries and those located in counties with a large mobility decline have worse stock performance. Firms sensitive to COVID-19-induced uncertainty also exhibit more negative returns. Finally, more negative stock returns are associated with downward revisions in earnings forecasts.