Why a pandemic recession should boost asset prices (... according to standard economic theory)
Discussion Papers from Department of Economics, Simon Fraser University
Economic recessions are traditionally associated with asset price declines, and recoveries with asset price booms. Standard asset pricing models make sense of this: during a recession, dividends are low and the marginal value of wealth is high, causing low asset prices. Here, I develop a simple model which shows that this is not true during a recession caused by consumption restrictions, such as those seen during the 2020 pandemic: the restrictions drive the marginal value of wealth down, and thereby drive asset prices up, to an extent that tends to overwhelm the effect of low dividends.
Keywords: Covid-19 pandemic; social distancing; asset prices; stock market (search for similar items in EconPapers)
JEL-codes: E21 G12 I19 (search for similar items in EconPapers)
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