Abstract The COVID-19 pandemic that we are experiencing is both tragic and shocking. There is no question that, except in some Asian countries trained by prior infectious outbreaks, most policy makers around the world have been ill-prepared to respond to the crisis. The effects of the coronavirus on our mental and physical health has been indeed calamitous, and the economic and financial impacts for many have been truly unfortunate. Furthermore, the extreme nature of the event is challenging researchers to compile and interpret new evidence that is arriving at a rapid pace. The editors Hui Chen, Thierry Foucault, Jeffrey Pontiff, and Nikolai Roussanov and contributing authors are to be commended for assembling and collating a thought-provoking collection of papers. More time and study will be needed to fully sift through the evidence and to glean the lessons to be learned from this pandemic for policy makers and investors. But the evidence and insights in this volume are a very good start.
{"title":"Repercussions of Pandemics on Markets and Policy","authors":"L. Hansen","doi":"10.1093/rapstu/raaa020","DOIUrl":"https://doi.org/10.1093/rapstu/raaa020","url":null,"abstract":"Abstract The COVID-19 pandemic that we are experiencing is both tragic and shocking. There is no question that, except in some Asian countries trained by prior infectious outbreaks, most policy makers around the world have been ill-prepared to respond to the crisis. The effects of the coronavirus on our mental and physical health has been indeed calamitous, and the economic and financial impacts for many have been truly unfortunate. Furthermore, the extreme nature of the event is challenging researchers to compile and interpret new evidence that is arriving at a rapid pace. The editors Hui Chen, Thierry Foucault, Jeffrey Pontiff, and Nikolai Roussanov and contributing authors are to be commended for assembling and collating a thought-provoking collection of papers. More time and study will be needed to fully sift through the evidence and to glean the lessons to be learned from this pandemic for policy makers and investors. But the evidence and insights in this volume are a very good start.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":" ","pages":""},"PeriodicalIF":13.1,"publicationDate":"2020-10-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/rapstu/raaa020","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42088455","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The causes and consequences of the 2008 mortgage meltdown and 2020 COVID-19 crisis are quite different: the 2008 mortgage meltdown reflected infection of the financial system due to excess leverage and poor-quality mortgage loans, and the recent crisis reflects a substantial global economic shock to contain the viral outbreak of the coronavirus. Yet the financial and medical systems share many elements, such as opacity and interconnectedness as well as adequate buffers and reserves. We examine these themes as well as asset pricing, moral hazard (though it was at the root of the crisis only in the Great Recession), the consequences for government as a systemic actor, economic concentration, and capital market regulation in the two crises. In both crises, interventions in financial markets and disruptions in the housing market played important, but differing, roles. The recent crisis elucidates open questions about the foundation of financial economics and risk sharing. (JEL G1, G2, G3, E4, E5, B2) Received: June 6, 2020; editorial decision: August 25, 2020; Editor: Jeffrey Pontiff.
{"title":"A Tale of Two Crises: The 2008 Mortgage Meltdown and the 2020 COVID-19 Crisis","authors":"Chester Spatt","doi":"10.1093/rapstu/raaa019","DOIUrl":"https://doi.org/10.1093/rapstu/raaa019","url":null,"abstract":"Abstract The causes and consequences of the 2008 mortgage meltdown and 2020 COVID-19 crisis are quite different: the 2008 mortgage meltdown reflected infection of the financial system due to excess leverage and poor-quality mortgage loans, and the recent crisis reflects a substantial global economic shock to contain the viral outbreak of the coronavirus. Yet the financial and medical systems share many elements, such as opacity and interconnectedness as well as adequate buffers and reserves. We examine these themes as well as asset pricing, moral hazard (though it was at the root of the crisis only in the Great Recession), the consequences for government as a systemic actor, economic concentration, and capital market regulation in the two crises. In both crises, interventions in financial markets and disruptions in the housing market played important, but differing, roles. The recent crisis elucidates open questions about the foundation of financial economics and risk sharing. (JEL G1, G2, G3, E4, E5, B2) Received: June 6, 2020; editorial decision: August 25, 2020; Editor: Jeffrey Pontiff.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":" ","pages":""},"PeriodicalIF":13.1,"publicationDate":"2020-10-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/rapstu/raaa019","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49031270","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We analyze the dynamics of earnings forecasts and discount rates implicit in valuations during the COVID-19 crisis. Forecasts over 2020 earnings have been progressively reduced by 16%. Longer-run forecasts have reacted much less. We estimate an implicit discount rate going from 10% in mid-February to 13% at the end of March and reverting to its initial level in mid-May. Over this period, the unlevered asset risk premium is unchanged, as the risk-free rate drop is compensated by the effect of increased leverage. Hence, analysts’ forecast revisions explain all of the decrease in equity values between January 2020 and mid-May 2020.
{"title":"Earnings Expectations during the COVID-19 Crisis","authors":"Augustin Landier, D. Thesmar","doi":"10.1093/rapstu/raaa016","DOIUrl":"https://doi.org/10.1093/rapstu/raaa016","url":null,"abstract":"Abstract We analyze the dynamics of earnings forecasts and discount rates implicit in valuations during the COVID-19 crisis. Forecasts over 2020 earnings have been progressively reduced by 16%. Longer-run forecasts have reacted much less. We estimate an implicit discount rate going from 10% in mid-February to 13% at the end of March and reverting to its initial level in mid-May. Over this period, the unlevered asset risk premium is unchanged, as the risk-free rate drop is compensated by the effect of increased leverage. Hence, analysts’ forecast revisions explain all of the decrease in equity values between January 2020 and mid-May 2020.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":" ","pages":""},"PeriodicalIF":13.1,"publicationDate":"2020-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/rapstu/raaa016","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42476069","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract VIX futures prices rose slowly in late February and early March 2020 as the COVID-19 pandemic took hold. Futures price premiums, defined as futures prices minus real-time statistical forecasts of future VIX values, turned sharply negative and remained negative until mid-April. Trading strategies based on estimated premiums profited from the subsequent increase in market volatility and equity market crash. The underreaction of futures prices to growing pandemic risks poses a puzzle for standard asset pricing models.
{"title":"Volatility Markets Underreacted to the Early Stages of the COVID-19 Pandemic","authors":"Ing-Haw Cheng","doi":"10.2139/ssrn.3580531","DOIUrl":"https://doi.org/10.2139/ssrn.3580531","url":null,"abstract":"Abstract VIX futures prices rose slowly in late February and early March 2020 as the COVID-19 pandemic took hold. Futures price premiums, defined as futures prices minus real-time statistical forecasts of future VIX values, turned sharply negative and remained negative until mid-April. Trading strategies based on estimated premiums profited from the subsequent increase in market volatility and equity market crash. The underreaction of futures prices to growing pandemic risks poses a puzzle for standard asset pricing models.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":" ","pages":""},"PeriodicalIF":13.1,"publicationDate":"2020-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43974580","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
S. Baker, N. Bloom, S. Davis, Kyle J Kost, Marco Sammon, Tasaneeya Viratyosin
Abstract No previous infectious disease outbreak, including the Spanish Flu, has affected the stock market as forcefully as the COVID-19 pandemic. In fact, previous pandemics left only mild traces on the U.S. stock market. We use text-based methods to develop these points with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. We also evaluate potential explanations for the unprecedented stock market reaction to the COVID-19 pandemic. The evidence we amass suggests that government restrictions on commercial activity and voluntary social distancing, operating with powerful effects in a service-oriented economy, are the main reasons the U.S. stock market reacted so much more forcefully to COVID-19 than to previous pandemics in 1918–1919, 1957–1958, and 1968.
{"title":"The Unprecedented Stock Market Reaction to COVID-19","authors":"S. Baker, N. Bloom, S. Davis, Kyle J Kost, Marco Sammon, Tasaneeya Viratyosin","doi":"10.1093/rapstu/raaa008","DOIUrl":"https://doi.org/10.1093/rapstu/raaa008","url":null,"abstract":"Abstract No previous infectious disease outbreak, including the Spanish Flu, has affected the stock market as forcefully as the COVID-19 pandemic. In fact, previous pandemics left only mild traces on the U.S. stock market. We use text-based methods to develop these points with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. We also evaluate potential explanations for the unprecedented stock market reaction to the COVID-19 pandemic. The evidence we amass suggests that government restrictions on commercial activity and voluntary social distancing, operating with powerful effects in a service-oriented economy, are the main reasons the U.S. stock market reacted so much more forcefully to COVID-19 than to previous pandemics in 1918–1919, 1957–1958, and 1968.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":" ","pages":""},"PeriodicalIF":13.1,"publicationDate":"2020-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/rapstu/raaa008","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45142810","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We present a comprehensive analysis of the performance and flows of U.S. actively managed equity mutual funds during the 2020 COVID-19 crisis. We find that most active funds underperform passive benchmarks during the crisis, contradicting a popular hypothesis. Funds with high sustainability ratings perform well, as do funds with high star ratings. Fund outflows surpass precrisis trends, but not dramatically. Investors favor funds that apply exclusion criteria and funds with high sustainability ratings, especially environmental ones. Our finding that investors remain focused on sustainability during this major crisis suggests they view sustainability as a necessity rather than a luxury good.
{"title":"Mutual Fund Performance and Flows during the COVID-19 Crisis","authors":"Ľuboš Pástor, Blair Vorsatz","doi":"10.1093/rapstu/raaa015","DOIUrl":"https://doi.org/10.1093/rapstu/raaa015","url":null,"abstract":"Abstract We present a comprehensive analysis of the performance and flows of U.S. actively managed equity mutual funds during the 2020 COVID-19 crisis. We find that most active funds underperform passive benchmarks during the crisis, contradicting a popular hypothesis. Funds with high sustainability ratings perform well, as do funds with high star ratings. Fund outflows surpass precrisis trends, but not dramatically. Investors favor funds that apply exclusion criteria and funds with high sustainability ratings, especially environmental ones. Our finding that investors remain focused on sustainability during this major crisis suggests they view sustainability as a necessity rather than a luxury good.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":"1 1","pages":""},"PeriodicalIF":13.1,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/rapstu/raaa015","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41381702","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This is the first paper to examine how the COVID-19 shock transmitted from the asset markets to capital markets. Using a novel measure of the exposure of commercial real estate (CRE) portfolios to the increase in the number of COVID-19 cases (GeoCOVID), we find a one-standard-deviation increase in GeoCOVID on day t-1 is associated with a 0.24 to 0.93 percentage points decrease in abnormal returns over 1- to 3-day windows. There is substantial variation across property types. Local and state policy interventions helped to moderate the negative return impact of GeoCOVID. However, there is little evidence that reopenings affected the performance of CRE markets.
{"title":"A First Look at the Impact of COVID-19 on Commercial Real Estate Prices: Asset-Level Evidence","authors":"David C. Ling, Chongyu Wang, Tingyu Zhou","doi":"10.1093/rapstu/raaa014","DOIUrl":"https://doi.org/10.1093/rapstu/raaa014","url":null,"abstract":"Abstract This is the first paper to examine how the COVID-19 shock transmitted from the asset markets to capital markets. Using a novel measure of the exposure of commercial real estate (CRE) portfolios to the increase in the number of COVID-19 cases (GeoCOVID), we find a one-standard-deviation increase in GeoCOVID on day t-1 is associated with a 0.24 to 0.93 percentage points decrease in abnormal returns over 1- to 3-day windows. There is substantial variation across property types. Local and state policy interventions helped to moderate the negative return impact of GeoCOVID. However, there is little evidence that reopenings affected the performance of CRE markets.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":" ","pages":""},"PeriodicalIF":13.1,"publicationDate":"2020-06-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/rapstu/raaa014","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49482901","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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