Firm-Level Risk Exposures and Stock Returns in the Wake of Covid-19

Steven Davis, Stephen Hansen and Cristhian Seminario-Amez

No 8594, CESifo Working Paper Series from CESifo

Abstract: Firm-level stock returns differ enormously in reaction to COVID-19 news. We characterize these reactions using the Risk Factors discussions in pre-pandemic 10-K filings and two text-analytic approaches: expert-curated dictionaries and supervised machine learning (ML). Bad COVID-19 news lowers returns for firms with high exposures to travel, traditional retail, aircraft production and energy supply — directly and via downstream demand linkages — and raises them for firms with high exposures to healthcare policy, e-commerce, web services, drug trials and materials that feed into supply chains for semiconductors, cloud computing and telecommunications. Monetary and fiscal policy responses to the pandemic strongly impact firm-level returns as well, but differently than pandemic news. Despite methodological differences, dictionary and ML approaches yield remarkably congruent return predictions. Importantly though, ML operates on a vastly larger feature space, yielding richer characterizations of risk exposures and outperforming the dictionary approach in goodness-of-fit. By integrating elements of both approaches, we uncover new risk factors and sharpen our explanations for firm-level returns. To illustrate the broader utility of our methods, we also apply them to explain firm-level returns in reaction to the March 2020 Super Tuesday election results.

Date: 2020
New Economics Papers: this item is included in nep-big, nep-cmp and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp8594.pdf (application/pdf)

Related works:
Working Paper: Firm-Level Risk Exposures and Stock Returns in the Wake of COVID-19 (2020)
Working Paper: Firm-level Risk Exposures and Stock Returns in the Wake of COVID-19 (2020)
Working Paper: Firm-Level Risk Exposures and Stock Returns in the Wake of COVID-19 (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8594

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().