Coronavirus: Impact on Stock Prices and Growth Expectations

Niels Gormsen, Ralph S J Koijen and Nikolai Roussanov

The Review of Asset Pricing Studies, vol. 10, issue 4, 574-597

Abstract: We use data from aggregate stock and dividend futures markets to quantify how investors’ expectations about economic growth evolved across horizons following the outbreak of the novel coronavirus (COVID-19) and subsequent policy responses until July 2020. Dividend futures, which are claims to dividends on the aggregate stock market in a particular year, can be used to directly compute a lower bound on growth expectations across maturities or to estimate expected growth using a forecasting model. We show how the actual forecast and the bound evolve over time. As of July 20th, our forecast of annual growth in dividends points to a decline of 8% in both the United States and Japan and a 14% decline in the European Union compared to January 1. Our forecast of GDP growth points to a decline of 2% in the United States and Japan and 3% in the European Union. The lower bound on the change in expected dividends is -17% in the United States and Japan and -28% in the European Union at the 2-year horizon. News about U.S. monetary policy and the fiscal stimulus bill around March 24 boosted the stock market and long-term growth but did little to increase short-term growth expectations. Expected dividend growth has improved since April 1 in all geographies.

JEL-codes: G12 G31 (search for similar items in EconPapers)
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Working Paper: Coronavirus: Impact on Stock Prices and Growth Expectations (2020)
Working Paper: Coronavirus: Impact on Stock Prices and Growth Expectations (2020)
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