Coronavirus: Impact on Stock Prices and Growth Expectations

Niels Gormsen and Ralph Koijen

No 27387, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use data from the aggregate stock market and dividend futures to quantify how investors’ expectations about economic growth evolve across horizons in response to the coronavirus outbreak and subsequent policy responses until June 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 June 8, our forecast of annual growth in dividends is down 9% in the US and 14% in the EU compared to January 1, and our forecast of GDP growth is down by 2.0% in the US and 3.1% in the EU. The lower bound on the change in expected dividends is -18% in the US and -25% in the EU at the 2-year horizon. News about fiscal stimulus around March 24 boosts 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 both the US and the EU. We conclude by developing and estimating a simple model of the crisis to understand the joint dynamics of short-term dividend futures, stock markets, and bond markets.

JEL-codes: E44 F3 G1 G4 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-mac
Note: AP
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Citations: View citations in EconPapers (274)

Published as Niels Joachim Gormsen & Ralph S J Koijen & Nikolai Roussanov, 2020. "Coronavirus: Impact on Stock Prices and Growth Expectations," The Review of Asset Pricing Studies, vol 10(4), pages 574-597.

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Related works:
Working Paper: Coronavirus: Impact on Stock Prices and Growth Expectations (2020)
Journal Article: Coronavirus: Impact on Stock Prices and Growth Expectations
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