Have Medical and Political Countermeasures Mitigated Investor Fears during the COVID-19 Pandemic?

Abstract

Yes. We contrast the impacts of COVID-19 shocks and medical and political countermeasures in an otherwise standard model of financial market return determinants. During the pandemic, fears about COVID-19 can replace the economic sentiment to have a lasting negative impact on the stock market, especially in the first wave of the virus spreading. Medical research and government policies contribute to the stimulations of financial markets; however, efficient vaccines, when not developed, tend to negatively impact future stock returns and exacerbate the negative influence of COVID-19 sentiment on the stock market. Instead, such situations can be eased once medical research becomes advanced, helping the reconstruction of investor confidence. Public attention to the political support promoting economic and financial recovery has a positive impact on stock market returns and mitigates the shock of COVID-19 sentiment on the stock market.