Overnight and intraday price discovery in panic period: evidence from COVID-19

This paper analyzes how public-health–induced panics reshape price discovery between the overnight and trading-hours windows. Using COVID-19 as a natural experiment, we construct text-based measures that disentangle pandemic-related sentiment from conventional economic pessimism and decompose returns into overnight and intraday legs. Fiscal outlays and vaccine developments are included in our analysis as countermeasures. Our results suggest that sentiment derived from news integrating pandemic and economic information displaced conventional economic pessimism as the dominant short-horizon driver. During the Omicron wave, such news generated sizable opening gaps with limited subsequent reversals. Investors reacted positively to announcements about fiscal recovery programs, vaccine breakthroughs, and distribution milestones; the marginal impact of this information diminished once policies were implemented and vaccines became widely available, consistent with swift information assimilation. Overall, we provide a general mechanism for market recoveries from public-health rare disasters in which panic advances and concentrates price discovery in the overnight window, and the contributions of fiscal and vaccine announcements to price discovery exhibit diminishing marginal effects as implementation proceeds.