Discussion paper

DP14875 Coronavirus: Impact on Stock Prices and Growth Expectations

We use data from the aggregate stock market and dividend futures to quantify how investors’ expectations about economic growth evolve across horizons in response to the coronavirus outbreak and subsequent policy responses until June 2020. Dividend futures, which
are claims to dividends on the aggregate stock market in a particular year, can be used to directly compute a lower bound on growth expectations across maturities or to estimate expected
growth using a forecasting model. We show how the actual forecast and the bound evolve over
time. As of June 8, our forecast of annual growth in dividends is down 9% in the US and
14% in the EU compared to January 1, and our forecast of GDP growth is down by 2.0% in
the US and 3.1% in the EU. The lower bound on the change in expected dividends is -18% in
the US and -25% in the EU at the 2-year horizon. News about fiscal stimulus around March
24 boosts the stock market and long-term growth but did little to increase short-term growth
expectations. Expected dividend growth has improved since April 1 in both the US and the
EU. We conclude by developing and estimating a simple model of the crisis to understand the
joint dynamics of short-term dividend futures, stock markets, and bond markets.


Gormsen, N and R Koijen (2020), ‘DP14875 Coronavirus: Impact on Stock Prices and Growth Expectations‘, CEPR Discussion Paper No. 14875. CEPR Press, Paris & London. https://cepr.org/publications/dp14875