Saved by the bell? Equity market responses to surprise Covid-19 lockdowns and central bank interventions

Aakriti Mathur, Rajeswari Sengupta and Bhanu Pratap ()
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Bhanu Pratap: Reserve Bank of India

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: Negative equity market reactions at the onset of the Covid-19 crisis raised concerns about the vulnerabilities in non-financial firms, requiring swift actions by central banks to prevent system-wide stresses. We investigate the Indian context, where the announcement of a surprise, nationwide lockdown in March 2020, was followed by the announcement of an unanticipated policy package by the central bank a few days later. Using natural language processing on quarterly earnings call reports, we construct a firm-specific measure of concern about the pandemic for a set of Indian non-financial firms. We find that firms that were exposed to the pandemic in early 2020 had worse stock market performance when the lockdown was announced. These results are explained by the implications of pandemic-related uncertainty for the future cash flows of these firms. The central bank's policy package seemed to have reversed the impact of the lockdown announcement in the short-term.

Keywords: Covid-19; event study; earnings calls; firm performance; uncertainty; central bank policies (search for similar items in EconPapers)
JEL-codes: D8 E58 G14 G18 G32 L25 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-fmk, nep-mac and nep-mon
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