COVID-19 pandemic and capital markets: the role of government responses

Christian Beer (), Janine Maniora () and Christiane Pott ()
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Christian Beer: TU Dortmund University
Janine Maniora: Heinrich-Heine-University Düsseldorf
Christiane Pott: TU Dortmund University

Journal of Business Economics, 2023, vol. 93, issue 1, No 2, 57 pages

Abstract: Abstract This paper analyzes the moderation effect of government responses on the impact of the COVID-19 pandemic, proxied by the daily growth in COVID-19 cases and deaths, on the capital market, i.e., the S&P 500 firm’s daily returns. Using the Oxford COVID-19 Government Response Tracker, we monitor 16 daily indicators for government actions across the fields of containment and closure, economic support, and health for 180 countries in the period from January 1, 2020 to March 15, 2021. We find that government responses mitigate the negative stock market impact and that investors’ sentiment is sensitive to a firm’s country-specific revenue exposure to COVID-19. Our findings indicate that the mitigation effect is stronger for firms that are highly exposed to COVID-19 on the sales side. In more detail, containment and closure policies and economic support mitigate negative stock market impacts, while health system policies support further declines. For firms with high revenue exposure to COVID-19, the mitigation effect is stronger for government economic support and health system initiatives. Containment and closure policies do not mitigate stock price declines due to growing COVID-19 case numbers. Our results hold even after estimating the spread of the pandemic with an epidemiological standard model, namely, the susceptible-infectious-recovered model.

Keywords: COVID-19; Government policies; Investor sentiment; Capital market; Sales revenue; Behavioral finance (search for similar items in EconPapers)
JEL-codes: C23 G11 G18 G41 I18 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11573-022-01103-x

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