Country Responses and the Reaction of the Stock Market to COVID-19—a Preliminary Exposition

Abstract

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.

Economic Policy Uncertainty in Times of COVID-19 Pandemic

“…Our finding of a pandemic-induced economic uncertainty in China and Korea echoes the observations that the unprecedented nature of the COVID-19 outbreak spearheaded equally unprecedented policy responses (Iyke, 2020b;Phan & Narayan, 2020), whose paths and impacts are uncertain (Altig et al, 2020). Our conclusion is in line with Altig et al (2020), who find, using the UK and the US data, that the implied economic uncertainty of the COVID-19 shock is large.…”

“…We measure the COVID-19 pandemic using a dummy variable, which assigns a value of zero to months before March 2020 and a value of one from March 2020. On 11 th March 2020, the World Health Organization declared COVID-19 as a pandemic (see Phan & Narayan, 2020). Hence, March 2020 is chosen to coincide with this declaration.…”

“…The COVID-19 outbreak caught everyone by surprise. The pandemic has been devastating, in terms of contagiousness and fatality, and brought economies to a halt (see Phan & Narayan, 2020). The pandemic led to unprecedented policy responses-lockdowns, social distancing, and stimulus packages-across the globe (Iyke, 2020b).…”

Stock Market Reactions to COVID-19 Pandemic Outbreak: Quantitative Evidence from ARDL Bounds Tests and Granger Causality Analysis

“…Markets are a function of government, hence responding reliant on authority reply [84]. Alfaro, Chari, Greenland and Schott [32] confirmed that a doubling of projected contaminations is linked with a 4 to 11 percent deterioration of aggregate market value.…”

Dynamics of Foreign Portfolio Investment and Stock Market Returns During the COVID-19 Pandemic: Evidence From India

“…The existing literature on the impact of COVID-19 is evolving. The literature has found that the pandemic adversely impacts economic growth and trade (Vidya & Prabheesh, 2020) and stock markets (Ertuğrul et al, 2020;Haroon & Rizvi, 2020;He et al, 2020;Huang & Zheng, 2020;Iyke, 2020;Phan & Narayan, 2020;. However, no specific study examines the FPI and stock market returns relationship during the COVID-19 pandemic.…”