Hang in There: Stock Market Reactions to Withdrawals of COVID-19 Stimulus Measures

Jorge Chan-Lau and Yunhui Zhao

No 2020/285, IMF Working Papers from International Monetary Fund

Abstract: The COVID-19 pandemic prompted unprecedented economic stimulus worldwide. We empirically examine the impact of a withdrawal of fiscal stimulus policies on the stock markets. After constructing a database of withdrawal events, we use event study analysis and cross-country regressions to assess the difference between the pre- and post-event stock price returns. We find that markets react negatively to premature withdrawals—defined as withdrawals at a time when the daily COVID cases are high relative to their historical average—likely reflecting concerns about the withdrawal impact on the prospects for economic recovery. The design of a successful exit strategy from COVID-19 policy responses should account for these concerns.

Keywords: stock prices; event study; exit strategy; COVID-19 (search for similar items in EconPapers)
Pages: 22
Date: 2020-12-18
New Economics Papers: this item is included in nep-fmk
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