Finance Research Letters xxx (xxxx) xxx

Contents lists available at ScienceDirect

Finance Research Letters

journal homepage: www.elsevier.com/locate/frl

Global financial crisis and COVID-19: Industrial reactions

Hsuan-Chi Chen a, 1, *, Chia-Wei Yeh b, 1
a
Anderson School of Management, University of New Mexico, Albuquerque, NM 87131, USA
b
Department of Banking and Finance, National Chi Nan University, Nantou County 545, Taiwan

A R T I C L E I N F O A B S T R A C T

JEL classification: We study industrial reactions to both the global financial crisis of 2008 and the COVID-19
E52 pandemic. Although most industries in the U.S. suffered from the two events, the stock perfor­
G00 mance of most industries started to recover following the announcements of quantitative easing.
G01
Our results indicate that quantitative easing is effective in boosting investor confidence. We also
G14
G18
find that the effect of quantitative easing in 2020 on stock performance is more significant for the
industries that are more affected by the pandemic.
Keywords:
Global financial crisis
COVID-19
Quantitative easing
Stock market

1. Introduction

On March 11, 2020, the World Health Organization (WHO) characterized the spread of a novel coronavirus (COVID-19) as a global
pandemic as many countries reported surging numbers of confirmed cases. The quick spread of COVID-19 saw enormous impacts on
economies and financial markets around the world. For instance, mandatory closures of non-essential businesses, lockdowns (limiting
the movement of people), and travel bans (restricting travel and closing borders) are implemented to control the spread of COVID-19
and simultaneously restrict economic activities (Baig et al., 2020; Narayan et al., 2020). Also, in March 2020, the S&P 500 index
dropped by more than 7% in each of three single trading days.2 In response to adverse effects triggered by COVID-19 on the economy
and financial markets, the Federal Reserve (Fed) announced a quantitative easing plan to purchase $500 billion in Treasury securities
and $200 billion in mortgage-backed securities on March 15, 2020 (Timiraos, 2020). Furthermore, the Coronavirus Aid, Relief, and
Economic Security (CARES) Act, an economic relief package of over $2 trillion, was passed by Congress with overwhelming support
and immediately signed into law by President Trump on March 27, 2020.3
Given the worldwide impact of the current pandemic on stock market performance, recent studies have begun to investigate the
effects of COVID-19 and present the results using event studies. For example, Goodell and Huynh (2020) examine whether legislator
trades were ahead of the market. Using the criteria set by a key announcement date (February 26, 2020) and 15 industries identified as

* Corresponding author.
E-mail addresses: [email protected] (H.-C. Chen), [email protected] (C.-W. Yeh).
1
The authors are grateful to the editor and referee for several helpful suggestions of improvements. Hsuan-Chi Chen gratefully acknowledges
support from Anderson School of Management at the University of New Mexico.
2
Those single-day index returns were -7.6% (3/09/2020), -9.5% (3/12/2020), and -12.0% (3/16/2020), respectively.
3
https://www.congress.gov/bill/116th-congress/house-bill/748/all-actions?overview=closed#tabs.

https://doi.org/10.1016/j.frl.2021.101940
Received 30 September 2020; Received in revised form 13 December 2020; Accepted 16 January 2021
Available online 19 January 2021
1544-6123/© 2021 Elsevier Inc. All rights reserved.

Please cite this article as: Hsuan-Chi Chen, Chia-Wei Yeh, Finance Research Letters, https://doi.org/10.1016/j.frl.2021.101940
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

having abnormal returns, they find that many of legislator trades can be categorized as “trading ahead of the market.”4 Heyden and
Heyden (2020) document that stocks react significantly negatively to the announcement of the first death in the U.S. and in European
countries. Using the universe of S&P1500 firms, Mazur et al. (2020) investigate the effect of COVID-19 on stock performance during
the market crash of March 2020 (i.e., March 9, 2000; March 12, 2000; March 16, 2000). Narayan et al. (2020) study the effect of
government responses of G7 countries to the pandemic on stock market returns. They show that lockdowns, travel bans, and economic
stimulus packages had a positive effect on the G7 stock markets, with lockdowns as the most effective response in cushioning the effects
of COVID-19.
Our paper complements the event study literature on the impacts of COVID-19 on stock market performance by providing insights
into both the pandemic impacts and the policy effects of monetary authority on industrial portfolio performance. We also compare the
two recent worldwide events, namely, the financial crisis of 2008 and the COVID-19 pandemic of 2020. We find that some industries
began to decline before the bankruptcy of Lehman Brothers. After September 15, 2008, the decline in industries including coal,
precious metals, non-metallic and industrial metal mining, petroleum and natural gas, and fabricated products was persisting. Some
industries that performed well before September 15, 2008 were also affected by the bankruptcy event and started to experience
negative abnormal returns. Around October 3, 2008, a bailout plan was proposed and passed by the U.S. Congress, but the stock market
did not recover immediately. After the first announcement of quantitative easing (QE) on November 25, 2008, most industries started
to recover from negative abnormal returns.
The outburst of COVID-19 also exhibits severe effects on the stock market. Many companies are forced to halt production for
controlling the spread of COVID-19. Before the WHO announced the spread of COVID-19 as a pandemic on March 11, 2020, most
industries had already experienced negative abnormal returns. The Fed announced a QE plan on March 15, 2020 and the Congress
passed the CARES Act quickly on March 27, 2020. As a result, the severe negative returns did not last for a long time. The regression
results show that the daily excess returns of industrial portfolios are significantly reduced following both the financial crisis of 2008
and the announcement of WHO, but significantly increase after the QE announcements, suggesting that the QEs are effective in
restoring investor confidence when major adverse events occurred. Moreover, the effect of QE is more significant for worst performing
industries that are severely affected by the pandemic than for the other industries.
The remainder of this paper is organized as follows. Section 2 describes the data. Section 3 presents the empirical results, and
Section 4 concludes.

2. Data

We obtain the daily market return data from the Center for Research in Security Prices (CRSP) database. To be included in the
sample, we require the stocks to be listed on the NYSE, AMEX, or NASDAQ. Following the classification of Fama and French (1997), we
form 49 industry portfolios based on the four-digit SIC code at the end of June of each year. The daily abnormal return is computed as
the difference between the industry portfolio’s daily return and the CRSP value-weighted market index return (as the proxy for the
market return) on the same date. We estimate the market model over the estimation window (− 150, − 31). The cumulative abnormal
return (CAR) is then calculated by cumulating the abnormal returns over the window (t1, t2), where day 0 is the event date, or the first
trading day following the event date if it is a nontrading day. We use the St. Louis Fed Financial Stress Index (STLFSI2) to measure the
degree of financial stress in the markets. It is a weekly index constructed by the Federal Reserve Bank of St. Louis with higher index
values representing above-average financial market stress.

3. Empirical results

3.1. The effect of COVID-19 on stock performance

On March 11, 2020, the WHO characterized the spread of COVID-19 as a pandemic as many countries reported surging numbers of
cases. Fig. 1 presents the CARs around the announcement of the WHO. The market portfolio return (Benchmark) declines following the
event date (March 11, 2020) and reaches a bottom around day +8 (March 23, 2020). After the Coronavirus Aid, Relief, and Economic
Security Act passed by the U.S. Congress (day +12; March 27, 2020), the stock market begins to recover. Similarly, we sort the industry
portfolios based on CAR(− 30, 0) before the event. The five worst-performing industries, including precious metals, petroleum and
natural gas, entertainment, aircraft, and restaurants, hotels, motels, have negative CARs before the event date, and their performances
are worse than that of the market portfolio after the event date. However, the CAR of the petroleum and natural gas portfolio becomes
positive after day +34 (April 29, 2020). We also find that the five best-performing industries, including coal, candy and soda, agri­
culture, pharmaceutical products, and computer software, have positive CARs before the event date, and they do not seem to be

4
On February 26, 2020, the Centers for Disease Control and Prevention (CDC) confirmed a possible first community transmission of COVID-19 in
the United States. See “CDC Confirms Possible Instance of Community Spread of COVID-19 in U.S.” https://www.cdc.gov/media/releases/2020/
s0226-Covid-19-spread.html

2
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Fig. 1. Cumulative abnormal returns around the event that WHO characterized the spread of COVID-19 as a pandemic
This figure displays the cumulative abnormal returns (CARs) from 30 days before to 60 days after the event that the World Health Organization
characterized the spread of COVID-19 as a pandemic (March 11, 2020). The daily abnormal return is the difference between the daily return of an
industry portfolio and the CRSP value-weighted market index return (Benchmark) on the same day.

3
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Table 1
Cumulative abnormal returns around the WHO’s assessment that characterizes COVID-19 as a pandemic
This table presents the cumulative abnormal returns (CARs) for 49 industry portfolios following the classification of Fama and French (1997). The
CRSP value-weighted market index return is used as the benchmark when calculating the abnormal returns. The event date is March 11, 2020, when
the World Health Organization (WHO) characterized the spread of COVID-19 as a pandemic. The ranking is based on CAR(− 30, 0), which is the
cumulative abnormal return before the event date.
Industry Industry Name Rank CAR(− 30,0) CAR(− 30,+10) CAR(− 30,+30) CAR(− 30,+60)

27 Precious Metals 1 − 54.56 − 60.48 − 24.40 2.47

30 Petroleum and Natural Gas 2 − 40.15 − 17.85 1.14 34.08
7 Entertainment 3 − 26.26 − 20.90 − 23.13 26.42
24 Aircraft 4 − 24.17 − 34.48 − 30.73 0.64
44 Restaurants, Hotels, Motels 5 − 21.35 − 23.45 − 20.36 2.56
18 Construction 6 − 20.46 − 24.38 − 31.41 − 2.71
6 Recreation 7 − 19.44 − 15.34 − 0.82 17.89
8 Printing and Publishing 8 − 17.72 − 25.51 − 40.34 − 17.69
16 Textiles 9 − 17.38 − 36.71 − 49.63 − 33.09
20 Fabricated Products 10 − 16.76 − 12.57 − 9.98 5.00
35 Computers 11 − 16.13 − 11.34 − 18.08 − 6.49
39 Business Supplies 12 − 15.62 − 19.03 − 24.60 − 6.89
28 Non-Metallic and Industrial Metal Mining 13 − 14.87 − 9.47 − 11.05 18.50
45 Banking 14 − 14.11 − 18.24 − 25.17 − 11.96
15 Rubber and Plastic Products 15 − 13.20 − 10.03 − 1.39 14.91
33 Personal Services 16 − 12.63 − 16.83 − 16.87 10.20
9 Consumer Goods 17 − 11.24 − 12.45 − 13.60 2.06
14 Chemicals 18 − 10.70 − 3.62 − 6.68 12.09
34 Business Services 19 − 10.64 − 17.66 − 16.99 6.27
47 Real Estate 20 − 10.36 − 15.08 − 23.69 − 4.16
42 Wholesale 21 − 10.22 − 7.87 − 10.87 8.46
40 Shipping Containers 22 − 9.07 − 5.47 − 4.05 − 6.96
10 Apparel 23 − 8.79 − 11.82 − 27.15 − 10.41
31 Utilities 24 − 8.75 − 13.73 − 5.29 − 2.97
43 Retail 25 − 8.12 − 5.44 − 11.73 12.40
22 Electrical Equipment 26 − 7.83 − 10.65 − 13.16 − 1.16
49 Other 27 − 7.51 − 13.93 − 13.15 − 0.11
37 Electronic Equipment 28 − 7.29 − 3.84 − 2.28 6.92
4 Beer and Liquor 29 − 7.19 − 13.13 − 3.13 − 9.51
41 Transportation 30 − 6.39 1.78 − 10.33 7.65
21 Machinery 31 − 6.27 − 4.57 − 9.03 6.58
23 Automobiles and Trucks 32 − 5.79 − 8.53 − 12.75 10.42
11 Healthcare 33 − 5.44 15.34 16.22 19.17
26 Defense 34 − 5.05 15.52 20.19 28.84
38 Measuring and Control Equipment 35 − 4.74 2.47 3.38 9.33
32 Communication 36 − 4.19 − 1.94 − 6.37 10.96
25 Shipbuilding, Railroad Equipment 37 − 4.17 − 7.15 − 6.39 15.50
46 Insurance 38 − 3.92 − 4.71 − 9.23 − 2.65
17 Construction Materials 39 − 3.44 − 7.23 − 8.65 7.91
2 Food Products 40 − 3.38 − 2.58 4.70 6.05
48 Trading 41 − 3.20 − 2.94 − 3.63 7.80
12 Medical Equipment 42 − 2.43 − 3.03 10.84 17.56
5 Tobacco Products 43 − 2.01 − 0.19 − 0.71 6.76
19 Steel Works Etc 44 − 1.92 0.92 − 5.98 9.44
36 Computer Software 45 − 1.68 3.55 8.25 20.40
13 Pharmaceutical Products 46 − 0.76 4.69 10.18 16.56
1 Agriculture 47 4.90 10.64 2.80 13.31
3 Candy and Soda 48 7.47 1.40 13.27 39.73
29 Coal 49 13.20 29.68 26.44 64.78

affected by this event.

Table 1 shows the CARs for the 49 industry portfolios. Most of the industry portfolios experience negative CARs at day +10 and day
+30 following the announcement of the WHO, but have positive CARs at day +60, indicating that the CARES Act of 2020 is effective in
restoring investors’ confidence in the stock markets.5
Before the passage of the CARES Act of 2020, the Fed announced a quantitative easing plan to purchase $500 billion in Treasury
securities and $200 billion in mortgage-backed securities on March 15, 2020 (Timiraos, 2020). Fig. 2 presents the CARs around the QE

5
In addition to the WHO’s announcement, we also use the date (February 26, 2020) when the Centers for Disease Control and Prevention (CDC)
confirmed the possibility of community spread of the virus in the United States as an event date. We find weak industrial reactions before the CDC’s
announcement, but most of the industries started to exhibit negative CARs immediately following the announcement. The results are available upon
request.

4
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Fig. 2. Cumulative abnormal returns around the Quantitative Easing in 2020

This figure displays the cumulative abnormal returns (CARs) from 30 days before to 60 days after the first announcement of Quantitative Easing in
2020 (March 15, 2020). The daily abnormal return is the difference between the daily return of an industry portfolio and the CRSP value-weighted
market index return (Benchmark) on the same day.

5
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Table 2
Cumulative abnormal returns around the Quantitative Easing in 2020
This table presents the cumulative abnormal returns (CARs) for 49 industry portfolios following the classification of Fama and French (1997). The
CRSP value-weighted market index return is used as the benchmark when calculating the abnormal returns. The event date is March 15, 2020, when
the Fed announced the quantitative easing policy. The ranking of the industries follows Table 1.
Industry Industry Name Rank CAR(− 30,0) CAR(− 30,+10) CAR(− 30,+30) CAR(− 30,+60)

27 Precious Metals 1 − 91.36 − 66.46 − 23.67 4.72

30 Petroleum and Natural Gas 2 − 18.24 − 32.22 1.47 43.28
7 Entertainment 3 − 44.90 − 31.91 − 15.07 16.53
24 Aircraft 4 − 36.94 − 33.34 − 24.77 2.04
44 Restaurants, Hotels, Motels 5 − 38.06 − 32.19 − 15.39 − 3.07
18 Construction 6 − 34.59 − 26.45 − 17.26 − 2.82
6 Recreation 7 − 24.58 − 12.94 4.58 23.66
8 Printing and Publishing 8 − 24.54 − 32.78 − 37.38 − 31.13
16 Textiles 9 − 25.68 − 32.34 − 39.01 − 32.83
20 Fabricated Products 10 − 7.76 − 7.81 − 1.49 4.53
35 Computers 11 − 20.68 − 14.44 − 10.87 − 6.41
39 Business Supplies 12 − 13.20 − 18.60 − 13.32 − 8.15
28 Non-Metallic and Industrial Metal Mining 13 − 10.93 − 17.51 − 4.26 18.53
45 Banking 14 − 15.41 − 16.84 − 16.99 − 15.22
15 Rubber and Plastic Products 15 − 7.12 − 3.98 9.26 21.25
33 Personal Services 16 − 17.04 − 13.91 − 7.70 16.93
9 Consumer Goods 17 − 16.06 − 13.83 − 5.56 5.89
14 Chemicals 18 − 4.20 − 5.82 0.05 12.70
34 Business Services 19 − 16.32 − 17.91 − 10.01 8.20
47 Real Estate 20 − 16.43 − 17.10 − 15.76 − 3.11
42 Wholesale 21 − 11.45 − 6.00 − 0.78 12.20
40 Shipping Containers 22 − 0.67 − 0.60 6.83 − 8.31
10 Apparel 23 − 13.98 − 18.19 − 15.38 − 13.47
31 Utilities 24 − 18.20 − 6.93 − 3.18 − 3.92
43 Retail 25 − 6.47 − 10.32 2.75 16.33
22 Electrical Equipment 26 − 8.30 − 14.37 − 8.21 2.24
49 Other 27 − 15.27 − 12.31 − 7.55 4.87
37 Electronic Equipment 28 − 4.88 − 2.43 4.44 11.29
4 Beer and Liquor 29 − 5.76 − 9.29 1.47 − 10.14
41 Transportation 30 − 5.57 − 6.56 − 5.07 5.99
21 Machinery 31 − 2.89 − 7.30 − 2.86 6.39
23 Automobiles and Trucks 32 − 1.93 − 14.80 − 2.93 11.28
11 Healthcare 33 − 15.41 16.25 20.65 19.81
26 Defense 34 10.61 15.81 19.66 28.07
38 Measuring and Control Equipment 35 − 6.13 3.83 8.50 11.41
32 Communication 36 − 7.15 − 1.82 − 1.39 12.27
25 Shipbuilding, Railroad Equipment 37 − 1.14 − 6.77 1.73 17.58
46 Insurance 38 − 8.22 − 2.58 − 5.56 − 4.70
17 Construction Materials 39 − 6.04 − 7.99 − 0.60 7.47
2 Food Products 40 − 3.17 3.15 8.73 9.41
48 Trading 41 − 7.93 − 3.22 − 0.50 8.59
12 Medical Equipment 42 − 9.50 1.87 14.37 20.30
5 Tobacco Products 43 − 3.69 7.33 12.65 13.10
19 Steel Works Etc 44 3.63 − 1.98 − 2.29 9.18
36 Computer Software 45 − 4.17 2.77 10.67 22.98
13 Pharmaceutical Products 46 − 4.91 6.04 15.86 23.48
1 Agriculture 47 4.00 9.13 6.23 10.55
3 Candy and Soda 48 5.00 5.48 14.86 40.77
29 Coal 49 36.67 16.93 29.13 66.60

announcement in 2020. The results are similar to those in Fig. 1.

Table 2 presents the CARs for the 49 industry portfolios following the announcement of QE in 2020. Most of the industry portfolios
have positive CARs at day +60 after the policy announcement, suggesting that QE is effective in boosting the confidence of investors
though the effect is confounding with that of the CARES Act of 2020.6

3.2. Regression results

Using the method of Noth and Rehbein (2019), we conduct regression analyses to examine the effects of the two events on the

6
We also conduct analyses using March 27, 2020 as the event date when the U.S. congress passed the CARES Act. The results are similar to those
when we use the announcement of QE as the event date. These results are available upon request.

6
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Table 3
Regressions of portfolio returns around the events
This table presents the results of the effects of the two events on the daily and weekly returns of industry portfolios. The sample period is from − 255 to
+60 days around the quantitative easing (QE) events. For columns (1) and (2), the sample period is from November 21, 2007 to February 24, 2009.
For columns (3) to (6), the sample period is from March 12, 2019 to June 10, 2020. ExcessReturn is the difference between the industry portfolio return
and the CRSP value-weighted market index return. We use daily returns in columns (1), (3), and (5), and weekly returns in columns (2), (4), and (6).
Financial Stress Index is an index constructed by the Federal Reserve Bank of St. Louis, which measures the degree of financial stress in the markets.
Affected2008 is a dummy variable, which equals to one if the industry is one of the 10 worst-performing industries based on the CAR(− 30, 0) before
the bankruptcy of Lehman Brothers (refer to Table B1 in Appendix B), and zero otherwise. Affected2020 is a dummy variable, which equals to one if
the industry is one of the 10 worst-performing industries based on the CAR(− 30, 0) before the announcement of the WHO (refer to Table 1), and zero
otherwise. Post2008 is a dummy variable, which equals to one after the bankruptcy of Lehman Brothers (September 15, 2008), and zero otherwise.
Post2008QE is a dummy variable, which equals to one after the announcement of QE in 2008 (November 25, 2008), and zero otherwise. Post2020 is a
dummy variable, which equals to one after the announcement of the WHO (March 11, 2020), and zero otherwise. Post2020QE is a dummy variable,
which equals to one after the announcement of QE in 2020 (March 15, 2020), and zero otherwise. PostCARES is a dummy variable, which equals to
one after the U.S. Congress passes the CARES Act (March 27, 2020), and zero otherwise. T-statistics based on heteroscedasticity robust standard errors
are reported in parentheses. *, **, and *** indicates statistical significance at the 10%, 5%, and 1% levels, respectively.
(1) (2) (3) (4) (5) (6)
Dependent variable ExcessReturn ExcessReturn ExcessReturn ExcessReturn ExcessReturn ExcessReturn

Financial Stress Index 0.051*** 0.110 − 0.118*** − 0.507*** − 0.169*** − 0.636***

(2.893) (1.136) (− 4.415) (− 3.810) (− 6.579) (− 4.403)
Post2008 − 0.505*** − 1.875***
(− 5.651) (− 3.646)
Post2008 × Affected2008 − 0.254 − 1.642**
(− 1.381) (− 2.084)
Post2008QE 0.531*** 2.355***
(8.323) (7.081)
Post2008QE × Affected2008 0.346 2.478**
(1.586) (2.440)
Post2020 − 0.699*** − 4.434*** − 0.595*** − 3.997***
(− 3.285) (− 5.068) (− 2.830) (− 4.458)
Post2020 × Affected2020 − 1.475* − 7.010*** − 1.477* − 6.946***
(− 1.850) (− 3.566) (− 1.854) (− 3.532)
Post2020QE 1.286*** 7.122*** 1.656*** 8.769***
(6.085) (8.852) (7.065) (10.205)
Post2020QE × Affected2020 1.750** 8.533*** 1.795** 5.622**
(2.152) (4.032) (2.040) (2.157)
PostCARES − 0.436*** − 2.051***
(− 4.458) (− 4.035)
PostCARES × Affected2020 − 0.053 3.203**
(− 0.161) (2.009)
Number of observations 15,484 3,087 15,484 3,038 15,484 3,038
Adjusted R2 0.008 0.048 0.020 0.150 0.023 0.157
Industry fixed effects Yes Yes Yes Yes Yes Yes

industry portfolio returns around the event dates. Each sample period is from − 255 to +60 days around the announcement date of the
respective QE policy following each event. Therefore, for the event of financial crisis, the sample period is from November 21, 2007 to
February 24, 2009; for the event of COVID-19, the sample period is from March 12, 2019 to June 10, 2020. Our regression model is
specified as follows.
ExcessReturnit = βi + β1 Financial Stress Indext + β2 PostYYYYt + β3 PostYYYYt × AffectedYYYYi + εit , (1)

where ExcessReturn is the daily difference between the industry portfolio return and the CRSP value− weighted market index return,
and YYYY stands for either 2008 or 2020. Financial Stress Index is a weekly index constructed by the Federal Reserve Bank of St. Louis,
which measures the degree of financial stress in the markets. Since the index is updated every Friday, we use the most recent available
index value in the regression analyses. Affected2008 is a dummy variable, which equals to one if the industry is one of the ten worst-
performing industries based on the CAR(− 30, 0) before the bankruptcy of Lehman Brothers (refer to Table B1), and zero otherwise.
Affected2020 is a dummy variable, which equals to one if the industry is one of the ten worst-performing industries based on the CAR
(− 30, 0) before the announcement of the WHO (refer to Table 1), and zero otherwise. Post2008 is a dummy variable, which equals to
one after the bankruptcy of Lehman Brothers (September 15, 2008), and zero otherwise. We also add Post2008QE in the regression
model, which is a dummy variable equal to one following the announcement of QE in 2008 (November 25, 2008), and zero otherwise.
Similarly, Post2020 is a dummy variable, which equals to one after the announcement of the WHO (March 11, 2020), and zero
otherwise.7 We include Post2020QE in the regression model as well, which is a dummy variable equal to one after the announcement of

7
We also do robustness check using the announcement date of the CDC (February 26, 2020). The results are qualitatively similar and are available
upon request.

7
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Fig. A1. Cumulative abnormal returns around the bankruptcy of Lehman Brothers
This figure displays the cumulative abnormal returns (CARs) from 30 days before to 60 days after the bankruptcy of Lehman Brothers (September
15, 2008). The daily abnormal return is the difference between the daily return of an industry portfolio and the CRSP value-weighted market index
return (Benchmark) on the same day.

8
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Table B1
Cumulative abnormal returns around the bankruptcy of Lehman Brothers
This table presents the cumulative abnormal returns (CARs) for 49 industry portfolios following the classification of Fama and French (1997). The
CRSP value-weighted market index return is used as the benchmark when calculating the abnormal returns. The event date is September 15, 2008,
when Lehman Brothers announced the bankruptcy. The ranking is based on CAR(− 30, 0), which is the cumulative abnormal return before the event
date.
Industry Industry Name Rank CAR(− 30,0) CAR(− 30,+10) CAR(− 30,+30) CAR(− 30,+60)

29 Coal 1 − 52.67 − 67.30 − 96.58 − 118.02

27 Precious Metals 2 − 41.85 − 32.20 − 91.43 − 51.30
28 Non-Metallic and Industrial Metal Mining 3 − 27.88 − 23.68 − 57.44 − 49.95
30 Petroleum and Natural Gas 4 − 25.65 − 28.68 − 65.65 − 75.68
20 Fabricated Products 5 − 16.75 − 29.00 − 47.09 − 71.06
19 Steel Works Etc 6 − 16.11 − 25.88 − 46.05 − 40.60
22 Electrical Equipment 7 − 12.67 − 9.02 − 18.07 − 25.67
21 Machinery 8 − 9.54 − 9.69 − 32.19 − 37.54
13 Pharmaceutical Products 9 − 8.25 − 8.40 − 19.39 − 16.95
1 Agriculture 10 − 6.26 − 3.81 1.45 − 28.79
37 Electronic Equipment 11 − 5.52 − 7.54 − 13.67 − 19.61
38 Measuring and Control Equipment 12 − 5.10 − 6.56 − 19.75 − 25.85
25 Shipbuilding, Railroad Equipment 13 − 4.65 − 2.95 − 25.14 − 26.10
2 Food Products 14 − 4.20 − 7.08 − 9.93 − 13.75
14 Chemicals 15 − 3.04 − 9.42 − 18.38 − 21.66
6 Recreation 16 − 3.04 2.59 − 3.40 − 10.96
31 Utilities 17 − 2.34 − 3.68 − 8.02 − 4.64
12 Medical Equipment 18 − 1.74 − 3.79 − 17.39 − 17.04
48 Trading 19 − 0.97 7.71 15.67 13.02
49 Other 20 − 0.44 − 3.16 − 9.37 − 15.55
36 Computer Software 21 − 0.20 0.00 − 6.20 − 8.28
35 Computers 22 0.82 − 3.30 − 10.40 − 10.56
4 Beer and Liquor 23 0.92 − 0.83 − 2.57 − 4.14
47 Real Estate 24 1.65 1.45 − 13.03 − 14.44
34 Business Services 25 1.82 1.28 − 10.39 − 10.06
17 Construction Materials 26 2.80 3.66 − 10.61 − 10.75
11 Healthcare 27 3.31 − 0.17 − 18.28 − 20.43
32 Communication 28 3.98 5.39 − 9.79 − 3.61
23 Automobiles and Trucks 29 4.09 5.39 − 22.11 − 12.15
7 Entertainment 30 4.26 5.36 − 11.45 − 8.53
42 Wholesale 31 4.92 2.89 − 9.77 − 13.14
40 Shipping Containers 32 5.16 3.90 − 10.41 − 14.43
15 Rubber and Plastic Products 33 5.94 4.89 − 1.23 − 6.39
39 Business Supplies 34 5.95 3.16 − 11.37 − 12.61
24 Aircraft 35 7.05 4.57 2.61 5.96
3 Candy and Soda 36 7.99 10.61 9.62 4.09
33 Personal Services 37 8.43 6.36 − 1.04 1.44
41 Transportation 38 8.52 9.50 20.74 16.91
9 Consumer Goods 39 9.87 11.27 − 0.41 − 11.48
26 Defense 40 10.06 9.73 11.94 17.56
45 Banking 41 10.32 19.81 31.75 27.92
44 Restaurants, Hotels, Motels 42 10.57 9.30 − 2.85 − 6.40
46 Insurance 43 10.81 15.95 16.21 25.08
18 Construction 44 10.93 13.95 16.46 26.32
43 Retail 45 12.80 13.22 2.66 − 0.01
10 Apparel 46 13.98 16.52 1.19 − 2.65
8 Printing and Publishing 47 17.05 28.20 10.94 8.28
16 Textiles 48 19.15 20.28 − 1.38 − 19.66
5 Tobacco Products 49 22.18 22.81 27.47 28.61

QE in 2020 (March 15, 2020), and zero otherwise. In the extended regression model, we have an additional variable, PostCARES, which
is a dummy variable equal to one after the US Congress passed the CARES Act (March 27, 2020), and zero otherwise.
We present the regression results in Table 3. In column (1), we use daily excess returns as the dependent variable, and use the most
recent available financial stress index value for each day as a control variable. The coefficient of Post2008 is negative and significant,
suggesting that industrial portfolio excess returns are reduced by 0.51% after the financial crisis; and the coefficient of Post2008QE is
positive and significant, indicating that industrial excess returns increase by 0.53% after the QE announcement. However, the co­
efficients of both interaction terms are insignificant, suggesting that industrial excess returns over the respective post-event periods are
not significantly different between the ten worst performing industries identified before the bankruptcy of Lehman Brothers and the
other industries. In column (2), we compute excess returns on a weekly basis by aggregating the daily excess returns and conduct
analysis using the weekly data. The coefficients of both Post2008 and its interaction term with Affected2008 are negative and sig­
nificant. The result indicates that weekly excess returns are significantly different between two subperiods around the bankruptcy of

9
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Lehman Brothers. Also, there is a significant difference in weekly excess return between the ten worst performing industries and the
other industries during the post-event period. In addition, the coefficient of Post2008QE and its interaction term with Affected2008 are
positive and significant, suggesting that weekly excess returns increase following the QE announcement and the ten worst performing
industries benefit more from this announcement than other industries.
Similarly, we use daily excess returns as the dependent variable in columns (3) and (5), and weekly excess returns in columns (4)
and (6). In column (3), the coefficient of Post2020 is negative and significant, indicating that industrial excess returns decrease by
0.70% after the announcement of WHO; and the coefficient of Post2020QE is positive and significant, suggesting that industrial excess
returns increase by 1.29% following the QE announcement in 2020. In addition, the coefficients of both interaction terms are sig­
nificant, which indicates that the effects of these announcements are more significant for the ten worst performing industries before the
announcement of WHO than for the other industries. When we use the weekly data for robustness check in column (4), the results are
similar to those in column (3). In column (5), we extend the model in column (3) by adding PostCARES and its interaction term with
Affected2020 to examine whether the passage of CARES Act has an additional effect on the excess return. The coefficient of Post2020 is
negative and significant, indicating that the daily excess returns decrease by 0.60% after the announcement of WHO; the coefficient of
Post2020QE is positive and significant, suggesting that daily excess returns increase by 1.66% following the QE announcement in 2020;
and the coefficient of PostCARES is negative and significant, suggesting that the daily excess returns decrease again by 0.44% after the
CARES Act is passed. In column (6), we find that the coefficients of all interaction terms are significant, suggesting that the ten worst
performing industries are most affected by the COVID-19, but they recover more than other industries after the QE announcement and
the passage of CARES Act.

4. Conclusion

The financial crisis in 2008 and the outburst of COVID-19 in 2020 are two major events that negatively influence global financial
markets. Most industries in the U.S. suffered from the two events, and the Fed announced several QE plans to support the economy and
restore investor confidence. Our results show that the stock performance of most industries started to recover from the adverse impacts
of both events following QE announcements, suggesting that QE is effective in boosting investor confidence. In addition, we find that
the effect of the QE in 2020 on stock performance is more significant for the industries that are more affected by the pandemic.

CRediT authorship contribution statement

Hsuan-Chi Chen: Conceptualization, Methodology, Formal analysis, Investigation, Validation, Writing - original draft, Writing -
review & editing. Chia-Wei Yeh: Methodology, Software, Data curation, Formal analysis, Investigation, Validation, Visualization,
Writing - original draft.

Appendix: The effect of the financial crisis in 2008 on stock performance

On September 15, 2008, Lehman Brothers filed for bankruptcy protection, and a severe global financial crisis started and spread to
the rest of the world (see Bartram and Bodnar, 2009; Grout and Zalewska, 2016; Kotkatvuori-Örnberg et al., 2013; Wang et al., 2017;
among others). Fig. A1 presents the CARs around the bankruptcy of Lehman Brothers. The market portfolio return (Benchmark) started
to decline following the event date (September 15, 2008), and it became worse even after the bailout plan was proposed and passed by
the U.S. Congress (day +14; October 3, 2008). We sort the industry portfolios based on CAR(− 30, 0) before the event. Fig. A1 shows
the CARs of all 49 industries. The five worst-performing industries, including coal, precious metals, non-metallic and industrial metal
mining, petroleum and natural gas, and fabricated products, have negative CARs before the event date, and their CARs decline more
than market portfolio after the event date. We also find that the five best-performing industries, including tobacco products, textiles,
printing and publishing, apparel, and retail, have positive CARs before the event date, but their CARs start to decline following the
event date.8
Table B1 shows the CARs for the 49 industry portfolios. Most of the industry portfolios experience negative CARs even at day +60
following the bankruptcy of Lehman Brothers, indicating a long-lasting effect of this event on stock performance. In other words, it
would take a long time for the Emergency Economic Stabilization Act of 2008 to be effective in restoring investors’ confidence in the
stock markets.
On November 25, 2008, the Fed announced the purchases of $100 billion in government-sponsored enterprise debt and $500
billion in mortgage-backed securities in response to the 2008 financial crisis (Krishnamurthy and Vissing-Jorgensen, 2011; Chris­
tensen and Rudebusch, 2012; Kiley, 2016; Kryzanowski et al., 2017; Gokmenoglu and Hadood, 2020). Fig. A2 presents the CARs
around the announcement of quantitative easing in 2008. After the speech of Ben Bernanke, Chair of the Federal Reserve Board (day
+4; December 1, 2008), the precious metals industry and the non-metallic and industrial metal mining industry started to recover from
the negative CARs.
Table B2 shows the CARs for the 49 industry portfolios after the announcement of QE in 2008. Most of the industry portfolios start
to recover from negative CARs at day +30 after the QE announcement, indicating that this announcement stimulates and restores

8
Although we use identical data for the benchmark (market portfolio return), it looks different in various figures due to the scales of the axes.

10
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Fig. A2. Cumulative abnormal returns around the Quantitative Easing in 2008
This figure displays the cumulative abnormal returns (CARs) from 30 days before to 60 days after the first announcement of Quantitative Easing in
2008 (November 25, 2008). The daily abnormal return is the difference between the daily return of an industry portfolio and the CRSP value-
weighted market index return (Benchmark) on the same day.

11
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Table B2
Cumulative abnormal returns around the Quantitative Easing in 2008
This table presents the cumulative abnormal returns (CARs) for 49 industry portfolios following the classification of Fama and French (1997). The
CRSP value-weighted market index return is used as the benchmark when calculating the abnormal returns. The event date is November 25, 2008,
when the Fed announced the quantitative easing policy. The ranking of the industries follows Table B1.
Industry Industry Name Rank CAR(− 30,0) CAR(− 30,+10) CAR(− 30,+30) CAR(− 30,+60)

29 Coal 1 − 23.09 − 14.01 − 7.61 − 9.69

27 Precious Metals 2 5.74 19.81 77.85 96.17
28 Non-Metallic and Industrial Metal Mining 3 1.40 12.74 45.26 49.07
30 Petroleum and Natural Gas 4 − 2.36 − 2.01 12.00 3.15
20 Fabricated Products 5 − 39.16 − 20.94 − 15.87 − 39.38
19 Steel Works Etc 6 − 9.74 10.62 24.95 13.42
22 Electrical Equipment 7 − 15.16 − 10.41 3.07 − 2.40
21 Machinery 8 − 18.67 − 7.98 0.14 − 5.65
13 Pharmaceutical Products 9 − 3.12 2.42 24.99 30.76
1 Agriculture 10 − 17.69 − 19.97 − 2.07 − 6.27
37 Electronic Equipment 11 − 11.31 − 3.88 13.19 13.67
38 Measuring and Control Equipment 12 − 14.79 − 9.09 1.91 1.19
25 Shipbuilding, Railroad Equipment 13 − 17.35 − 10.92 − 0.19 − 16.86
2 Food Products 14 − 11.16 − 3.64 − 1.07 − 0.16
14 Chemicals 15 − 9.46 − 2.81 11.01 7.48
6 Recreation 16 − 13.68 − 13.84 6.73 − 7.87
31 Utilities 17 11.62 7.66 10.30 8.93
12 Medical Equipment 18 − 8.58 − 0.61 6.66 10.75
48 Trading 19 − 10.96 − 5.08 2.78 4.40
49 Other 20 − 9.94 − 6.35 5.53 5.63
36 Computer Software 21 − 9.54 − 4.06 6.70 8.25
35 Computers 22 − 11.06 − 3.52 12.84 14.54
4 Beer and Liquor 23 − 2.93 − 0.76 − 4.69 − 6.09
47 Real Estate 24 − 21.37 − 9.54 2.32 − 10.27
34 Business Services 25 − 7.12 − 0.71 15.56 24.02
17 Construction Materials 26 − 13.27 − 4.44 − 1.67 − 10.72
11 Healthcare 27 − 13.67 − 8.32 1.20 1.66
32 Communication 28 − 10.24 1.92 19.59 15.57
23 Automobiles and Trucks 29 − 18.96 − 5.13 14.06 − 0.09
7 Entertainment 30 − 10.93 − 5.54 12.79 7.11
42 Wholesale 31 − 14.05 − 7.28 4.23 2.17
40 Shipping Containers 32 − 16.06 − 14.13 − 3.60 − 3.46
15 Rubber and Plastic Products 33 − 10.10 − 11.37 − 8.23 − 27.17
39 Business Supplies 34 − 9.81 − 7.29 0.74 − 15.36
24 Aircraft 35 1.43 6.46 17.99 15.36
3 Candy and Soda 36 − 7.98 − 4.79 0.10 13.99
33 Personal Services 37 − 10.05 6.32 13.45 13.63
41 Transportation 38 − 2.49 1.08 6.76 − 5.44
9 Consumer Goods 39 − 20.61 − 21.53 − 15.78 − 38.01
26 Defense 40 0.21 10.68 20.47 33.55
45 Banking 41 − 5.96 − 6.16 − 6.58 − 23.43
44 Restaurants, Hotels, Motels 42 − 16.54 − 0.49 16.54 22.40
46 Insurance 43 − 6.55 − 2.33 4.61 − 4.75
18 Construction 44 − 16.96 1.92 6.33 − 5.20
43 Retail 45 − 22.98 − 12.13 − 6.24 − 5.16
10 Apparel 46 − 23.71 − 14.44 − 14.42 − 17.86
8 Printing and Publishing 47 − 29.38 − 21.69 − 2.93 − 16.38
16 Textiles 48 − 24.64 − 23.15 − 31.95 − 62.97
5 Tobacco Products 49 − 6.95 − 7.05 − 13.93 − 19.23

investors’ confidence in the stock markets.

References

Baig, A., Butt, H., Omair, H., Syed, R., 2020. Deaths, panic, lockdowns and US equity markets: The case of COVID-19 pandemic. Finance Res. Lett. forthcoming.
Bartram, S., Bodnar, G., 2009. No place to hide: The global crisis in equity markets in 2008/2009. J. Int. Money Finance 28, 1246–1292.
Christensen, J.H.E., Rudebusch, G.D., 2012. The response of interest rates to US and UK quantitative easing. Econ. J. 122, F385–F414.
Fama, E.F., French, K.R., 1997. Industry costs of equity. J. Financ. Econ. 43, 153–193.
Gokmenoglu, K., Hadood, A., 2020. Impact of US unconventional monetary policy on dynamic stock-bond correlations: Portfolio rebalancing and signalling channel
effects. Finance Res. Lett. 33, 101185.
Goodell, J., Huynh, T., 2020. Did Congress trade ahead? Considering the reaction of US industries to COVID-19. Finance Res. Lett. 36, 101578.
Grout, P., Zalewska, A., 2016. Stock market risk in the financial crisis. Int. Rev. Financ. Anal. 46, 326–345.

12
H.-C. Chen and C.-W. Yeh Finance Research Letters xxx (xxxx) xxx

Heyden, K., Heyden, T., 2020. Market reactions to the arrival and containment of COVID-19: An event study. Finance Res. Lett. forthcoming.
Kiley, M., 2016. Monetary policy statements, treasury yields, and private yields: Before and after the zero lower bound. Finance Res. Lett. 18, 285–290.
Kotkatvuori-Örnberg, J., Nikkinen, J., Äijö, J., 2013. Stock market correlations during the financial crisis of 2008–2009: Evidence from 50 equity markets. Int. Rev.
Financ. Anal. 28, 70–78.
Krishnamurthy, A., Vissing-Jorgensen, A., 2011. The effects of quantitative easing on interest rates: channels and implications for policy. Brook. Papers Econ. Act.
215–287. Fall 2011.
Kryzanowski, L., Zhang, J., Zhong, R., 2017. Cross-financial-market correlations and quantitative easing. Finance Res. Lett. 20, 13–21.
Mazur, M., Dang, M., Vega, M., 2020. COVID-19 and the march 2020 stock market crash: evidence from S&P1500. Finance Res. Lett. forthcoming.
Narayan, P., Phan, D., Liu, G., 2020. COVID-19 lockdowns, stimulus packages, travel bans, and stock returns. Finance Res. Lett. forthcoming.
Noth, F., Rehbein, O., 2019. Badly hurt? Natural disasters and direct firm effects. Finance Res. Lett. 28, 254–258.
Timiraos, N., 2020. Fed cuts rates to near zero and will relaunch bond-buying program. Wall Street J. March 15, 2020.
Wang, G.-J., Xie, C., Lin, M., Stanley, E., 2017. Stock market contagion during the global financial crisis: A multiscale approach. Finance Res. Lett. 22, 163–168.

13