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

Steven Davis, Stephen Hansen and Cristhian Seminario-Amez ()
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Cristhian Seminario-Amez: University of Chicago - Department of Economics

No 2020-139, Working Papers from Becker Friedman Institute for Research In Economics

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 ï¬ rms with high exposures to travel, traditional retail, aircraft production and energy supply – directly and via downstream demand linkages – and raises them for ï¬ rms 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 ï¬ rm-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-ï¬ t. By integrating elements of both approaches, we uncover new risk factors and sharpen our explanations for ï¬ rm-level returns. To illustrate the broader utility of our methods, we also apply them to explain ï¬ rm-level returns in reaction to the March 2020 Super Tuesday election results.

Pages: 82 pages
Date: 2020
New Economics Papers: this item is included in nep-big
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Citations: View citations in EconPapers (17)

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https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020139.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)
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