Table 4.
Change in the Gordon factors and stock return period February 19 through April 30, 2020 (extended downmarket period)
| (1) | (2) | (3) | (4) | (5) | (6) | |
|---|---|---|---|---|---|---|
| Return µ = 18.60%, σ = 14.70% |
Gordon k | Gordon w | Gordon 1 − b | Gordon k and w | Gordon k, w and 1 − b | Gordon + Δw, + Δk, 1 − b |
| Δk | 1.921 | − 516.1*** | − 597.0*** | |||
| (0.00753) | (− 2.023) | (− 2.340) | ||||
| Δw | 7.194 | 519.7*** | 604.8*** | |||
| (0.0284) | (2.048) | (2.384) | ||||
| Δ1 − b | − 2.949 | 7.609 | 2.282 | |||
| [+ Δ1 − b in spec, (6)] | (− 0.0358) | (0.0924) | (0.0777) | |||
| + Δw | 11.74*** | |||||
| (0.360) | ||||||
| + Δk | − 6.417** | |||||
| (− 0.207) | ||||||
| Consumer discretionary | − 13.62*** | − 13.49*** | − 13.57*** | − 12.94*** | − 12.98*** | − 14.01*** |
| (− 0.297) | (− 0.294) | (− 0.296) | (− 0.282) | (− 0.283) | (− 0.306) | |
| Consumer staples | 7.100 | 7.116 | 7.071 | 7.085* | 7.155* | 7.474* |
| (0.123) | (0.123) | (0.122) | (0.122) | (0.124) | (0.129) | |
| Energy | − 9.525 | − 9.288 | − 7.886 | − 3.230 | − 6.456 | − 9.938 |
| (− 0.114) | (− 0.112) | (− 0.0947) | (− 0.0388) | (− 0.0775) | (− 0.119) | |
| Financials | − 11.11*** | − 11.09*** | − 11.01*** | − 8.314** | − 8.097** | − 11.12*** |
| (− 0.259) | (− 0.259) | (− 0.257) | (− 0.194) | (− 0.189) | (− 0.259) | |
| Health care | 8.872** | 8.760** | 8.874** | 7.806** | 7.646** | 8.095** |
| (0.204) | (0.201) | (0.204) | (0.179) | (0.176) | (0.186) | |
| Industrials | − 4.706 | − 4.601 | − 4.717 | − 5.017 | − 5.060 | − 4.929 |
| (− 0.115) | (− 0.112) | (− 0.115) | (− 0.122) | (− 0.123) | (− 0.120) | |
| Information technology | 1.841 | 1.852 | 1.797 | 1.711 | 1.802 | 0.724 |
| (0.0436) | (0.0439) | (0.0426) | (0.0405) | (0.0427) | (0.0172) | |
| Materials | − 0.791 | − 0.792 | − 0.743 | 0.647 | 0.761 | − 2.303 |
| (− 0.0134) | (− 0.0135) | (− 0.0126) | (0.0110) | (0.0129) | (− 0.0391) | |
| Real estate | − 7.276 | − 7.337* | − 7.140 | − 5.092 | − 5.069 | − 6.652 |
| (− 0.102) | (− 0.103) | (− 0.100) | (− 0.0715) | (− 0.0711) | (− 0.0934) | |
| Utilities | − 3.877 | − 4.014 | − 4.072 | − 4.203 | − 3.727 | − 7.054* |
| (− 0.0659) | (− 0.0682) | (− 0.0692) | (− 0.0714) | (− 0.0633) | (− 0.120) | |
| Constant | − 15.74*** | − 15.65*** | − 15.74*** | − 14.37*** | − 14.17*** | − 17.43*** |
| Observations | 405 | 405 | 405 | 405 | 405 | 405 |
| Adjusted R2 | 0.232 | 0.232 | 0.232 | 0.270 | 0.272 | 0.263 |
This table shows the effect of the change in the Gordon factors on stock returns from February 19 through April 30, 2020, including the market recovery (March 23, 2020 till April 30, 2020) following the COVID-19 crisis-induced downmarket (February 19 till March 23, 2020). Columns (1) through (3) show the result of simple ordinary least-squares (OLS) regressions of stock returns on the change in discount rate, Δk, implied growth, Δw, and the payout ratio, Δ1 − b over the period starting December 31, 2019 and ending April 30, 2020. Columns (4) and (5) show the results using multiple OLS. In column (6), we additionally use dummy variables to estimate the effects of a positive change in implied growth, + Δw, and discount rate, + Δk. The dummy variables take the value of one if the change is positive, zero otherwise. Robust normalized beta coefficients are shown in parenthesis. These indicate the effect size of the Gordon factors and tell how much of a standard deviation in stock returns change for each standard deviation change in the Gordon factors. We use industry categorical variables to account for industry fixed effects. The communication services industry is used as the base and the factor results and beta weights for industries are shown as differences to this base
Signiicance is denoted by ***p<0.01, **p<0.05, *p<0.1