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The Covid-19 stock market puzzle and money supply in the US

Author

Listed:
  • Andreas Humpe

    (University of Applied Sciences Munich)

  • David McMillan

    (University of Stirling)

Abstract

In the first five months of 2020 industrial production in the US fell 15% due to the Covid-19 shut down. At the same time the S&P500 stock market index first dropped by 30% and then recovered to almost pre-crisis levels. This seems puzzling as the most severe economic recession in nearly a century unfolds. However, central banks have supported financial markets with unprecedented money supply and this might explain the observed stock market resilience. Within a cointegration framework, we estimate the relation between macroeconomic variables and the US stock market. Results show that approximately half of the stock market recovery can be attributed to the increase in money supply.

Suggested Citation

  • Andreas Humpe & David McMillan, 2020. "The Covid-19 stock market puzzle and money supply in the US," Economics Bulletin, AccessEcon, vol. 40(4), pages 3104-3110.
    • Handle: RePEc:ebl:ecbull:eb-20-00803
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Covid-19; Money Supply; Cointegration; Stock Market; Macroeconomy; US;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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