Abstract
This paper analyzes the impact of the coronavirus pandemic on Australian companies’ share prices. We use daily new infections as a risk factor and proxy for the severity of the pandemic. Based on the loading to this risk factor and abnormal returns during the crisis we categorize firms into (i) severely infected, (ii) infected and (iii) mildly or not infected. We find large differences across firms and sectors highlighting that the virus does not affect all firms and not in the same way contrasting evidence of financial contagion and excess co-movement from past crises. The increased cross-sectional dispersion of returns in the pandemic suggests a sophisticated response of investors resulting in significant diversification benefits.
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