Cash-flow Risk and Industry Response to COVID-19 Outbreak

Abstract

The COVID-19 outbreak has caused a negative shock to aggregate consumption. The central question addressed in this paper is how US industries react to this negative shock. I show that the long-term cash-flow risk measured using data until 2018 predicted which US industries will perform the worst during the current crisis. Industries with a high cash-flow risk have experienced abnormally low excess returns, high systematic risk and low risk-adjusted returns. This paper contributes to the recognition of cash-flow risk as an important driver of equity risk and returns during economic crises. JEL classification: G01, G12.