COVID-19 Uncertainty and Its Impact on Stock Prices
DOI:
https://doi.org/10.47611/jsrhs.v11i2.2592Keywords:
COVID-19 Uncertainty, Stock Prices, Stock Pricing ModelAbstract
This paper develops a stock-pricing model to investigate how the COVID-19 induced uncertainty affects stock prices. Through utilizing a series of mathematical techniques and conducting a comparative static analysis, we find that when economic uncertainty intensifies, the future payouts of firms, such as dividend payments to stockholders, tend to diminish, indicating a deterioration of firms’ stability and prospect. As a result, investors expect a reduction in the future payoffs of the stocks issued by firms. Given that the price of a stock reflects the present values of its expected future payoffs, the rising level of COVID-19 uncertainty, which undermines the future payoffs of the stocks that investors expect to receive, decreases stock prices.
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