Abstract
This study examines the impact of the COVID-19 pandemic on the S&P 500 Index through accounting return on equity. Previous literature examines the impact of the pandemic on the United States economy, government restrictions, and global market reaction. Accounting return on equity is employed due to the unmediated impact it has on shareholder wealth. The data obtained from Compustat comprise all available companies listed in the S&P 500 Index. This analysis stems from the first reported case of COVID-19 in the United States, January 21, 2020 and concludes on December 31, 2021. Significant (p-value < 0.0001) evidence conveys that the index had a strong negative initial response. However, the index recovered expeditiously. A multivariable regression model is employed to determine if the recovery led to inflated stock prices. For the purpose of this study, inflated stock prices are interpreted as return on equity is more pronounced than the intrinsic value of the companies that they represent. The results provide significant (p-value < 0.0001) evidence that return on equity is inflated on December 31, 2021. Controlled variables in this analysis include book to market, enterprise value multiple, price to operating earnings, price to earnings, price to sales, price to cash flow, total debt to total assets, total debt to equity, asset turnover, and price to book.