In the final analysis, we investigate how poorest performers react to COVID-19 and the associated revenue shock. The data are derived from Thomson Reuters Eikon. Because of its extreme value, Gulfport Energy data point has been omitted from the plot (see Table 2). The plot shows the relationship between monthly stock returns and daily stock return volatility for the universe of the S&P1500 firms in March 2020. March 2020 stock return and stock return volatility. On the other hand, sectors including crude petroleum, real estate, as well as hospitality and entertainment experience rapid descent of their market capitalizations and plunge over 70%. The superior performers in these industries yield a positive monthly return of over 20%.
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Further, we study industry-level patterns and show that during March 2020 stock market crash the best performing industries include healthcare, food, software and technology, as well as natural gas.
In contrast, firms in natural gas and chemicals sectors improve their market valuations and earn positive returns of more than 10%, on average. When analyzing single-day extreme events, namely Black Monday, Black Thursday, and Black Monday II, we find that firms that operate in crude petroleum sector are hit hardest and lose over 60% of their market values in a day. We find that that approximately 90% of the S&P1500 stocks generate asymmetrically distributed large negative returns ( Fig. 1 Finally, by using hand-collected data we examine firms’ immediate responses to COVID-19. We also investigate the implications for the stock price volatility. This paper attempts to answer these questions by examining the differential stock price reactions to the rapid spread of the coronavirus and the abrupt government interventions that triggered the crash. Whereas most sectors suffer and their stock prices collapse, some other may benefit from the pandemic and the resulting lockdown. Nevertheless, COVID-19, may not necessarily be equally detrimental to all firms and industries.
Consequently, this leads to the sharp reduction in consumption and economic output, lowering the stream of expected future cash flows. Since most of the businesses are prohibited from remaining fully operational during the imposed quarantine, they choose to adjust their labor costs by laying off employees. Clearly, COVID-19 represents a massive revenue shock to the economy. In this paper we investigate the effect of COVID-19 on the stock market behavior during the crash of March 2020 using the universe of S&P1500 firms. At present, US economy seems to be affected most with the rate of unemployment reaching above 20% 3 Because the virus is highly contagious and fatal, the authorities imposed strict quarantines on their populations and ordered the shut-down of the bulk of business activity. The crash was caused by government's reaction to a novel coronavirus (COVID-19), a disease which originated in the Chinese city of Wuhan in December 2019 and quickly spread around the world causing a pandemic. , Dow Jones Industrial Average (DJIA) plunged 6,400 points, an equivalent of roughly 26%.
March 2020 saw one of the most dramatic stock market crashes in history.
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