Stock valuation during the COVID-19 pandemic: An explanation using option-based discount rates

Abstract

Changes in short-term expected market returns (discount rates) were a significant driver behind the unprecedented fluctuations in equity markets during the first 4 months of the COVID-19 pandemic. Using option-based estimates of the expected market risk premium for 13 international markets, we find that approximately 40% of the change in market values during the COVID-19 pandemic can be attributed to changes in short-term discount rates. We also document sharply downward sloping term structures of equity risk premia at the start of the pandemic, consistent with Hasler and Marfè (2016). Finally, we document a significant increase in the correlation between index returns and changes in the short-term discount rate during the pandemic compared to the period before the pandemic.

Artificial neural network (ANN)-based estimation of the influence of COVID-19 pandemic on dynamic and emerging financial markets

“…By using GARCH and Ordinary Least Square (OLS) models, another study determined with using currency derivatives contracts between USD-TRY (Turkish New Lira) and EUR-TRY, the COVID-19 pandemic is negatively affected the futures derivatives market ( Buyukkara et al, 2022 ). Thirteen significant derivatives markets are deviating by 40 % during the COVID-19 pandemic may alter the short-term discount rates ( Berkman and Malloch, 2021 ). The VAR model was expanded to a Bivariate Asymmetric Dynamic Conditional (BADC) on the GARCH framework to estimate the contagion effect of COVID-19 syndrome on the futures derivatives markets of China and its major trading-partner countries.…”

The Digitalization Effectiveness as an Innovative Factor Development of the Agriculture in Azerbaijan

“…We used the concept of time series discounting for making formulas (Berkman & Malloch, 2021). At the same time, we did not use net profit indicators, but the absolute increase in net profit compared to the base period.…”

COVID caused a negative bubble. Who profited? Who lost? How stock markets changed?

“…The positive shock was probably due to a unique combination of excessive worldwide monetary easing, fiscal stimulus and ample free time to trade stocks due to lockdowns and a new work-from-home lifestyle. The lucky coincidence of this sequence with a V-shaped rebound led to a peculiar outcome and helped individual investors exploit the specific term structure of risk premia documented by Berkman and Malloch (2023) .…”