Covid-19 pandemic and stock market response: The role of firm-specific characteristics (early view)

Abstract

We examine the reaction of S&P BSE 500 companies to the outbreak of the novel coronavirus. We look into the impact of COVID-19 induced fear/uncertainty (VIX) on stock market returns and assess the role of pre-pandemic firm-specific characteristics in intensifying/reducing the effect of covid-19 induced fear/uncertainty on stock returns. We employ event study methodology and panel data approach with firm and industry-time fixed effects, which capture the impact of time-invariant firm factors and time-variant industry characteristics on stock market returns. We find that attention to the coronavirus (measured by Google search volume) and fear (VIX) played a significant role in the downfall and subsequent recovery of the stock market. Firm-specific factors partially explain the movement of stock returns in the first 68 trading days during the virus outbreak.