Stock return predictability in the time of COVID-19

We examine predictive ability of a relatively large number of variables from currency, bond and commodity markets for US stock returns during the COVID-19 crisis. As a novel contribution, we estimate robust Lasso predictive regressions with Cauchy errors, consistent with extreme movements and nonlinearities in the market. Both investment grade and high yield corporate bonds emerge as significant predictors of US stock returns in the period, lending support to recent policy decisions by the Federal Reserve.