Marco Del Angel, Caroline Fohlin, Marc D. Weidenmier: Do Global Pandemics Matter for Stock Prices? Lessons from the 1918 Spanish Flu, in: NBER Working Paper Series, Working Paper 28356, January 2021, DOI: 10.3386/w28356.
The authors examine the impact of the 1918 “Spanish” flu on stock prices in the United States.
The authors use the death rate to control for the impact of the global pandemic and war news reported in the New York Times to capture the positive impact of the end of World War I on stock prices. Using a new weekly hand collected New York Stock Exchange (NYSE) stock price index, they show that there is a correlation of -.73 between the aggregate stock market and the death rate. In addition, vector autoregressions demonstrate that the death rate can explain up to 24 percent of the the forecast error variance in the aggregate stock index from September 1918 to the end of the pandemic in March 1920. The authors also find that the flu had a significant but varied impact on nine NYSE sectors. The empirical analysis shows that pandemics can matter big time for stock prices.