Discover if economics is a subject for you...

Share prices allow us to see into the future

Blog > Published in COVID-19, April 28th, 2020

by Rachel Griffith, Peter Levell and Rebekah Stroud 

The spread of COVID-19, and the policy measures that were used to try to contain it worldwide, had a major impact on economic activity. One thing that people were interested in at the time is understanding how big this effect was, and having some idea of how this impact varied across firms and industries. One real-time measure that is useful is share prices of firms listed on the London Stock Exchange.

What are share prices and why are they informative? 

Buying a share (or stock) makes you a part owner of a company. Shareholders get a vote in certain corporate decisions (for example to select members of the company board), and perhaps more importantly, they are also paid a share of the company’s profits (a ‘dividend’).  

Importantly, the values shares are trading for in the stock market tell us not only about how well a company is doing today but also how well they are expected to do in the future. This is because the price of a share reflects not only the dividends a company currently pays, but also investors’ expectations of the dividends it will pay next year and the year after. If investors believe the dividends a company pays will go up, they will be willing to pay more to get hold of its shares today, and consequently its share price will rise. If on the other hand, investors are worried about the future profitability of a company, its share price will fall.

Changes in share prices in the present therefore reveal information about the future, making them a useful source of information for understanding how a given event is expected to affect different companies and industries.

In the context of the rapid spread of COVID-19, changes in share prices reflect market expectations about a number of effects, including: changes in final demand (people are buying more of some items and less of other items), changes in intermediate demand (the firms that they sell to are changing what they want to buy and how much), and restrictions in supply (it may be difficult for some firms to obtain inputs they need due, for example, to interruptions to their supply chain). 

Stock market data is available much more rapidly than official data on, for example, unemployment or GDP growth. Indeed it is updated second by second as investors act on the latest information, making a valuable and timely source of information.

It does have a few limitations however, when it comes to measuring the impact of the crisis. It does not include small firms, firms which are not listed on the stock exchange, the third sector or the public sector, which might be affected quite differently. For example, many public sector services have seen an increase in demand during the crisis. In addition, many of these firms operate internationally, so changes in their share prices will represent the effects not only on the UK economy but also in other markets where they operate. Finally, other factors may also have affected share prices over this period. For example, a price war between major oil producing countries led to a falls in international oil prices and the shares of oil companies in late February and March. 

Figure 1 shows the percentage change in the price of the FTSE All-Share price index over the period from 2 January to 23 March. The price index remained pretty steady in the early weeks of the crisis but saw a sharp decline in the weeks following the announcement of a lockdown in Northern Italy that ordered businesses to close and people to stay at home. Lockdowns of this kind would later be introduced across the whole of Italy and in other countries all over the world.

Figure 1: Percentage change in FTSE-All Share Index price from 2 January 2020.

How were different industries affected? 

Of course, the timing and magnitude of changes in share prices varied greatly by industry.

Figure 2 shows the change in the share price of all firms listed on the London Stock Exchange relative to the FTSE All-Share index between 2 January and 23 March 2020 (the FTSE All-share index fell by 35% over this period). The industries that were hardest hit include tourism and leisure (which includes air travel), fossil fuels production and distribution, insurance, retailers (excluding food and drug retailers) and some large manufacturing industries. At the other end of the spectrum some industries outperformed the market, including food and drug manufacturers and retailers, utilities, high tech manufacturing and tobacco. Unsurprisingly, firms in medical and biotech research also outperformed the market (falling by 16% relative to the overall fall of 35%).

Figure 2: Percentage change in share prices of firms in different sectors listed on the London Stock Exchange relative to the FTSE-All Share Index, 2 January – 23 March 2020 

Notes: Authors’ calculations based on indices of sector share prices, as reported on (accessed on 25 March 2020), using Industry Classification Benchmark definitions. 

The timing of changes in share prices reflects the timing of changes in market expectations. Figure 3 shows the change in share price over the period for the four sectors with the largest increase and the largest decrease in their relative share price over the period from 2 January to 23 March 2020. For most of these sectors, changes in share prices did not take place steadily over the period. Instead, big changes in share prices occurred from the end of February, in the days following Italy’s introduction of a lockdown in Lombardy, with very little change in prices in the period before. The exceptions to this are the gas and water, automotive and parts, and fossil fuel production sectors, where changes in share prices took place steadily over the three-month period, possibly driven by other factors. 

Figure 3: Percentage change in share prices of firms listed on the London Stock Exchange in sectors with the largest share price movements relative to the FTSE-All Share Index, from 2 January 2020 

Notes: Authors’ calculations based on indices of sector share prices, as reported on (accessed on 25 March 2020), using Industry Classification Benchmark definitions. Vertical lines indicate: 20 January, the first confirmed human-to-human transmission in China and first WHO report; 30 January, first confirmed case in the UK; 23 February, Italy introduced lockdown in Lombardy; 16 March, the UK Prime Minister first urged social distancing. 

How much support did the Coronavirus Job Retention Scheme (JRS) provide?

On 17 March the government announced a raft of measures aimed at protecting workers and businesses affected by measures taken to contain the spread of COVID-19. These included a 12-month business rates holiday for firms in the retail, leisure and hospitality industries and a Coronavirus Job Retention Scheme (JRS) that would pay 80% of employee wages for furloughed workers up to a maximum of £2,500 per month for each employee (furloughed workers cease to do work for a company but are kept on its payroll). This package was aimed, at least in part, to prevent otherwise viable businesses from shutting down.

The value of these measures varies greatly across different industries. Labour intensive sectors in particular are likely to have benefitted more from the JRS than other industries. In other sectors, capital costs and purchases of inputs from other industries are more significant; the benefit of the JRS to firms in these industries depends crucially on their ability to adjust their costs as they reduce output. For instance, airlines may use less fuel as more planes are grounded and flights cancelled, but they may still face the costs of leasing and maintaining those planes. The extent to which firms can quickly reduce their costs, and then when the recovery starts quickly scale up again, will depend on many factors, such as what these costs are and what sort of supply relationships they have with other firms.

To get an idea of the potential benefit of the JRS scheme for different industries relative to how badly those industries are likely to be affected, Figure 4 plots the potential coverage rates of the JRS scheme against the relative share price declines for some of the key industries. The horizontal axis shows the maximum extent of support the government has made available via JRS, i.e. if every private sector employee working in that industry (not only those in firms listed on the stock market) was furloughed and all firms claimed the full 80% of labour costs up to the £2,500 monthly limit; we scale this by total output of firms in each industry. The support will vary depending on how important labour is as a share of production, compared to machines and intermediate inputs (such as parts, electricity, etc.), and depending on the distribution of wages in each industry. The vertical axis shows the size of the relative change in share prices from 2 January to 23 March 2020, as shown in Figure 2. The size of each dot represents the number of people employed in that industry.

Figure 4: Potential coverage of Coronavirus Job Retention Scheme relative to output for different industries versus their share price changes relative to the FTSE-All Share Index, 2 January – 23 March 2020

Figure 4 shows that the support is more effectively targeted at some industries than others. For example, retail, for which labour is a relatively high share of output, has a comparatively high share of output covered by the JRS. Insurance, airlines, automotive and parts, and building and materials on the other hand have relatively small shares covered by JRS. Tourism and leisure (excluding air travel) stands out in being one of the hardest hit industries (in terms of seeing a large reduction in relative share price) and having a relatively high share of protection through JRS.

As the shutdown continues, more capital-intensive firms that are not able to substantially reduce their costs may start to struggle more; this may lead to pressure for further government support. There are likely to be long-run costs to the economy if these firms were forced to shut down and the skills and experience of their workers were lost.

Notes: The vertical axis shows the size of the relative change in share prices from Figure 2. The horizontal axis shows the potential coverage of the JRS scheme as a share of total industry output. The size of each dot represents the number of people employed in each industry. Potential coverage of JRS is 80% wage costs in each industry up to a maximum of £2,500 per worker per month. To obtain the potential coverage of the scheme relative to output, we multiply the potential coverage of each industry’s wage bill by each industry’s share of labour costs relative to total output. Labour shares are taken from the 2015 ONS Input-output tables. The potential coverage of the JRS scheme is calculated using the 2018 Quarterly Labour Force Survey. Employment data are taken from the 2018 Business Resister of Employment Statistics. JRS coverage for medical and biotech research and banking are taken from industries with SIC codes beginning 64 and 72 respectively (which are also included in the coverage rates for business services and financials respectively. Figure does not include data for alternative investment instruments, engineering products, household utilities, metals, mobile telecommunications, or tobacco either because these sectors could not be mapped to industries in the input-output tables or because they had negligible employment shares. We exclude healthcare and related services because the majority of employment in this industry is public sector. 

* Potential coverage of JRS for food and drug retailers is assumed to be the same as for retailers (exc. food and drug retailers). 

+ We have separated tourism and leisure (excluding air travel) and airlines for the purposes of the horizontal axis, but the share price information is for these two activities combined. 

Follow-up Activities and Questions 

Data activity 

Go to the Yahoo finance website and looking up a series of the FTSE 100 over time. Identify two periods of steep falls and see if you can identify what events might have occurred around that time to cause share prices to fall. In particular, explain why these events may have led investors to revise their expectations about future dividends.  

Which industries do you think would have seen the steepest share price declines? 

Which industries do you think would have outperformed the market? 

Questions for discussion 

Did share prices move differently in China, the US and the UK? What might have driven the similarities and differences? 

Gormsen, Niels Joachim, and Ralph Koijen ‘Coronavirus: Impact on Stock Prices and Growth Expectations’., 23 March 2020 

Ramelli, Stefano, and Alexander Wagner ‘What the stock market tells us about the consequences of COVID-19’. VoxEU, 12 March 2020.


  • Gross Domestic Product (GDP) A measure of the market value of the output of the economy in a given period.
  • Human capital The stock of knowledge, skills, behavioural attributes, and personal characteristics that determine the labour productivity or labour earnings of an individual. Investment in this through education, training, and socialization can increase the stock, and such investment is one of the sources of economic growth. Part of an individual’s endowments.
  • Labour-intensive Making greater use of labour as an input in production as compared with machines and other inputs.
  • Share A part of the assets of a firm that may be traded. It gives the holder a right to receive a proportion of a firm’s profit and to benefit when the firm’s assets become more valuable.

Glossary from the CORE Project, copied under the Creative Commons licence.

Links from the Financial Times

You may be able to get free access to these articles through your school.