Claudia

Introduction / Literature Review#

I think the introduction has a good structure. You might want to accentuate the conjectures underlying some of your hypotheses, i.e. that Covid can have a differential impact on many individuals and companies alike. You can illustrate that (if you want) by means of anecdotal examples as well. That can kind of serve as a bridge from the general (Covid and its consequences) to the particular (consequences for financial markets).

Data & Methodology#

The stock indices that you use seem appropriate to me (small & mid-cap indices for each country)

  • The Covid-data is also suitable

  • The exposition of the CAPM might be a little shorter. This could also be one area in which you can conduct robustness checks: you can use slightly different models (Fama-French, “market”), and see if your results still stand.

  • That methodology section is also not clear to me: the purpose of the asset pricing models in your thesis is to correct for systematic risk in the stock prices, so that only the component orthogonal to systematic risk is left. So if you have stock returns $R_i$, then $R_i - \mathbb{E}[R_i]$ is the unsystematic component, which might be affected by Covid-infections/deaths, as per your hypotheses.

Hypothesis#

I think you should test hypothesis one in the following way:

$$ R_{it} - \mathbb{E}[R_{it}] = \alpha + \beta \cdot \text{CovidVars}_{it} + \gamma \cdot \text{CountryDums}_{it} + \\
\delta \cdot \text{CovidVars x CountryDums}_{it} + \epsilon_{it} $$

and according to the null hypothesis (Wald-test), all the coefficients $\gamma$ are equal to each other. Then, there are no country-level differences in stock price reactions to an increase of 1 in the coronavirus-infections (or deaths). Of course, adding controls is always possible, as is adding dummies for e.g. the midcap indices (H2).

H3 seems a little bit ad hoc, the development is only introduced in the methodology section. It might be an idea to conjecture that the European stimulus has a differential impact across countries, and across firms of different sizes.