Equity market responses to surprise Covid-19 lockdowns: The role of pandemic-driven uncertainty

The onset of the Covid-19 pandemic raised questions about identifying and measuring vulnerabilities in non-financial firms in response to large shocks. Applying natural language processing on quarterly earnings call reports, we construct a firm-specific measure of concern about the pandemic for a set of Indian non-financial firms. Compared to their peers, firms with early concern about the pandemic had worse equity responses after the announcement of a surprise, nationwide lockdown in March 2020. We extract the context of the pandemic-related discussions to disentangle the possible mechanisms. The differential returns can only be explained by higher information uncertainty about the impact of the pandemic and its implications for future cash flows.