No Place like Home: Work from Home Ability and the Impact of the COVID-19 Pandemic on Asset Prices Across European Countries

Sammanfattning: Social distancing during the COVID-19 pandemic has given rise to Work from Home (WfH). This paper explains why the WfH-ability of firms could entail a return differential between industries with high and low WfH-abilities (WfH-differential). Industry-level WfH-abilities impact risk premia of assets differently depending on correlations with labour income. Studying stock markets of 26 countries and sorting firms by WfH-ability we find a WfH-differential for the majority of countries. In contrast to prior literature with a descriptive approach towards the WfH-differential, our cross-country study allows us to analyze its driving forces. The WfH-differential relates positively to the respective countries' pandemic severity and workplace disruptions while it relates negatively to legal labour protection. In an additional analysis, we reaffirm and apply our results by identifying a negative relationship between the WfH-differential and GDP growth in early 2020.