Understanding the Transmission of COVID-19 News to French Financial Markets

Author Name Willem THORBECKE (Senior Fellow, RIETI)
Creation Date/NO. May 2021 21-E-037
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First draft: May 2021
Revised: September 2021


News of COVID-19 cases roiled the French stock market in 2020. Finance theory indicates that changes in returns across many assets are driven by economy-wide rather than firm-specific factors. To identify these factors, this paper investigates the time series exposure of 174 French assets to macroeconomic variables. It then uses these exposures to examine the cross-sectional pattern of asset price changes due to coronavirus news. The results indicate that investors responded to COVID-19 news by bidding down the prices of assets that do badly when oil prices fall and the euro appreciates and by bidding up the prices of assets that do well when the European Central Bank eases. Banking sector stocks were not harmed by COVID-19 news, indicating that fears of a sovereign-bank nexus were not driving the response.

Published: Thorbecke, Willem, 2022. "Understanding the transmission of COVID-19 news to French financial markets in early 2020," International Economics, Volume 170 (2022), 103-114.