Great Recession: Mere Dry Run for COVID-19?

Alfredo Martin-Oliver and Florina Silaghi

Chapter 5 in Financial Transformations Beyond the COVID-19 Health Crisis, 2022, pp 131-151 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The immediate real effects of the COVID-19 crisis are far more dramatic than those of the Great Recession of 2008. Moreover, the initial stock market plunge to the World Health Organization’s announcement on March 11, 2020, declaring COVID-19 a pandemic reached levels unseen since 1997. This has led commentators to qualify the Great Recession as a mere dry run for COVID-19. This chapter compares the reaction of the stock and credit default swap market to Lehman bankruptcy filing announcement with their reaction to the COVID-19 announcements. Cumulative returns and spread changes over a period of 30 calendar days following the event are also analyzed. Moreover, we investigate the effects of both adverse shocks and stimulus announcements by industry. We find that the credit default swap (CDS) market reaction is not statistically different in the two outbreaks, implying a similar increase in perceived credit risk. For the stock market, however, although the initial response to COVID-19 is significantly larger, the post-shock effects over 30 calendar days were significantly larger for the Lehman announcement.

Keywords: COVID19; Pandemic; Pandemic Outbreak; Health Crisis; Economics; Macroeconomics; Finance; Sustainable Finance; Financial Crisis; Financial Integration; Economic Integration; Global Financial Crisis; Financial Institutions; Corporate Finance; Corporate Governance; Board of Directors; ESG; Corporate Social Responsibility; Sustainable Finance; Stock Markets; Financial Markets; Stock Market Behaviour; Firm Liquidity; Emerging Markets; China; Financial Institutions; Money; Banks; Banking System; Banking Sector; Business Groups; Resilience; Safe Heaven; Gold; Oil; Peer-to-Peer Lending Market; Foreign Trading; Stock Market Volatility; Extreme Events (search for similar items in EconPapers)
JEL-codes: F4 F62 G15 G17 G3 O16 (search for similar items in EconPapers)
Date: 2022
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