Firm-Level Risk Exposures and Stock Returns in the Wake of COVID-19

Steven Davis, Stephen Hansen and Cristhian Seminario-Amez

No 27867, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firm-level stock returns differ enormously in reaction to COVID-19 news. We characterize these reactions using the Risk Factors discussions in pre-pandemic 10-K filings and two text-analytic approaches: expert-curated dictionaries and supervised machine learning (ML). Bad COVID-19 news lowers returns for firms with high exposures to travel, traditional retail, aircraft production and energy supply—directly and via downstream demand linkages—and raises them for firms with high exposures to healthcare policy, e-commerce, web services, drug trials and materials that feed into supply chains for semiconductors, cloud computing and telecommunications. Monetary and fiscal policy responses to the pandemic strongly impact firm-level returns as well, but differently than pandemic news. Despite methodological differences, dictionary and ML approaches yield remarkably congruent return predictions. Importantly though, ML operates on a vastly larger feature space, yielding richer characterizations of risk exposures and outperforming the dictionary approach in goodness-of-fit. By integrating elements of both approaches, we uncover new risk factors and sharpen our explanations for firm-level returns. To illustrate the broader utility of our methods, we also apply them to explain firm-level returns in reaction to the March 2020 Super Tuesday election results.

JEL-codes: E44 G12 G14 G18 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-big, nep-mac and nep-rmg
Note: AP EFG
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Firm-Level Risk Exposures and Stock Returns in the Wake of COVID-19 (2020)
Working Paper: Firm-Level Risk Exposures and Stock Returns in the Wake of Covid-19 (2020)
Working Paper: Firm-level Risk Exposures and Stock Returns in the Wake of COVID-19 (2020)
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