In another exercise, they and research assistants reviewed next-day newspaper accounts in order to diagnose the forces behind large daily stock market jumps, as perceived contemporaneously by journalists.From January 2, 1900, to February 23, 2020, “contemporary journalistic accounts attributed not a single daily stock market jump to infectious disease outbreaks or policy responses to such outbreaks,” the researchers write. “Perhaps surprisingly, even the Spanish flu pandemic [of 1918 and 1919] fails to register in next-day journalistic explanations for large daily stock market moves.”
By contrast, next-day newspaper articles attributed 15 or 16 of the 18 stock market jumps between February 24 and March 24 to news about the coronavirus or policies related to it. Far from being a nonfactor in news about market volatility, the current pandemic has been a constant figure in market news during a historically volatile period.
Why has this outbreak wreaked so much more havoc on equity markets than those in the past? One possibility the researchers consider is that the coronavirus and the disease it causes, COVID-19, are simply more serious than the diseases at the heart of past public-health crises. But the researchers consider this answer “highly incomplete,” given that even the notoriously deadly 1918 flu didn’t trigger a market reaction remotely similar to that caused by the coronavirus.
Another explanation rests on how much more rapidly news spreads today than was possible during previous disease outbreaks. But the researchers note that the Spanish flu’s stock market impact was comparatively mild even over the course of months, during which time news of the disease would have had plenty of time to travel. The researchers also consider the interconnectedness of the modern economy, and the importance of services—which often involve face-to-face interactions—to many developed economies, and conclude that these factors contribute to the coronavirus’s market impact, but don’t explain it entirely.
Rather, the researchers point to the public-health policy response to the pandemic, which has involved travel restrictions, the temporary closure of businesses such as bars and restaurants, and other social-distancing measures. They suggest that such containment efforts are more extensive and widespread than those in place during past disease outbreaks, and when combined with the modern economy’s interconnectivity, have created an economic impact of historic magnitude.
“The health-care rationale for travel restrictions, social distancing mandates, and other containment policies is clear,” they write. “These policies also bring great economic damage. Recent stock-market behavior is an early and visible reflection of the (expected) damage.”