D1 Article in a trade journal
COVID-19 and the Power of Discounting in Stock Markets (2020)
Junttila, J.-P. (2020). COVID-19 and the Power of Discounting in Stock Markets. Social Science Research Network, 24.4.2020, 1-64. https://doi.org/10.2139/ssrn.3583415
JYU authors or editors
Publication details
All authors or editors: Junttila, Juha-Pekka
Journal or series: Social Science Research Network
eISSN: 1556-5068
Publication year: 2020
Volume: 24.4.2020
Pages range: 1-64
Publisher: Elsevier
Publication country: United States
Publication language: English
DOI: https://doi.org/10.2139/ssrn.3583415
Persistent website address: https://ssrn.com/abstract=3583415
Publication open access: Not open
Publication channel open access:
Abstract
model of the stock market behaviour has not been operational as such in the European and US stock markets when the nominal and/or real short-term interest rates have been below zero or at the zero lower bound. However, when we augment the discount model with relevant contemporaneous observations on stock market and macroeconomic uncertainty indicators, the main macro factors in the discount model retain their explanatory power in the valuation of common stocks. We also find that the current extraordinarily serious threat on future real economic activity development caused by the COVID-19 crisis is the main factor affecting also the deep dive in the valuation of stock market assets, both in the European and US data. Nevertheless, based on our results, both the nonlinear effects from stock market tail risks, reflecting investors' fears of rare disasters, and from unconventional monetary policy actions have to be accounted for in order to reach the final effects of worsening future real economic prospects in the discounting behaviour of stock market investors. According to our results it also seems that the most relevant remedy for the current crisis are the unconventional monetary policy actions from the stock market discounting point of view.
Keywords: communicable diseases; pandemics; COVID-19; economic effects; economic crises; security market; shares; monetary policy; uncertainty; macroeconomy; discounting; unusual conditions
Free keywords: COVID-19; discounting; stock markets; macro factors; rare disasters; tail risk; unconventional monetary policy
Contributing organizations
Ministry reporting: Won't be reported
Reporting Year: 2020
