Abstract
This paper investigates the relationship between changes in the newspaper-based infectious diseases tracking index (ITI) of Baker et al. (2020) and sectoral stock market returns in the US. Our results spanning the period 1985:01 to 2020:03 reveal the presence of a negative (positive) relationship between returns and ITI at lower (higher) return quantiles (representing different market conditions) in a majority of the sectors. For the health care sector, this relationship is negative at all quantiles. Interestingly, inclusion of the COVID-19 period in the sample data leads to the detection of a stronger relationship for smaller quantiles across all sectors. An asymmetric relationship between returns and the ITI is witnessed across different market conditions for the Consumer Staples, Healthcare, Industrial and Technology sectors. Results from a rolling regression uncover differences in the magnitudes of responses to various infectious diseases over time. Our results carry important implications regarding investment strategies for US sectoral returns in the presence of news relating to infectious diseases.
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