EconPapers    
Economics at your fingertips  
 

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 (1) Track citations by RSS feed

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) Downloads
Working Paper: Firm-level Risk Exposures and Stock Returns in the Wake of COVID-19 (2020) Downloads
Working Paper: Firm-Level Risk Exposures and Stock Returns in the Wake of COVID-19 (2020) Downloads
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 ().

 
Page updated 2021-10-17
Handle: RePEc:ces:ceswps:_8594