As the coronavirus pandemic (COVID-19) has amplified so has country responses to it. With COVID-19 taking its toll on humans, as reflected in the number of people infected by, and deaths from, COVID-19, countries responded by locking down economic activity and peoples movement, imposing travel bans, and implementing stimulus packages to cushion the unprecedented slowdown in economic activity and loss of jobs. This article provides a commentary on how the most active financial indicator-namely, the stock price-reacted in realtime to different stages in COVID-19's evolution. We argue that, as with any unexpected news, markets overreact and as more information becomes available and people understand the ramifications more broadly the market corrects itself. This is our hypothesis which needs robust empirical verification.
Highlights
We examine the effect of government responses of G7 countries to COVID-19.
We focus on reaction of G7 stock market returns.
We show the importance of lockdowns, travel bans, and economic stimulus.
Lockdowns resulted in cushioning the effects of COVID-19 most.
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