Stock market in the age of COVID19: Mere acclimatization or Stockholm syndrome?

We investigate the behavior of stock prices to variations in COVID19 infection rate over time. To study the inter-temporal impact of the pandemic on major stock indexes, we apply factor model, and disaggregate the sample period in three COVID19 waves. We bring interesting evidence on the so-called immune behavior of stock indexes. While no signs of stock market immunity to the disease were confirmed, the opportunities created by the pandemic would help new winners, causing a shift of sectoral gains. Distinguishing the surges from plunges in the COVID19 infections, we observe the behavior of stock indexes towards different scenarios during the pandemic. While the conventional wisdom may lead to an overall probable pessimistic outcome, we find that diversity and speedy adjustment based on new business models resulted in sizable theoretical inconsistencies and asymmetries in the response of stock indexes to the pandemic.