Economic impact of government interventions during the COVID-19 pandemic: International evidence from financial markets

Badar Nadeem Ashraf

doi:10.1016/j.jbef.2020.100371

Economic impact of government interventions during the COVID-19 pandemic: International evidence from financial markets

J Behav Exp Finance. 2020 Sep:27:100371. doi: 10.1016/j.jbef.2020.100371. Epub 2020 Jun 29.

Author

Badar Nadeem Ashraf^{1

2}

Affiliations

¹ School of Finance, Jiangxi University of Finance and Economics, Nanchang (330013), China.
² Institute of Business Research, University of Economics Ho Chi Minh City, Vietnam.

Abstract

The outbreak of COVID-19 pandemic came as a rare, unprecedented event and governments around the globe scrambled with emergency actions including social distancing measures, public awareness programs, testing and quarantining policies, and income support packages. In this paper, we examine the expected economic impact of government actions by analyzing the effect of such actions on stock market returns. Using daily data from January 22 to April 17, 2020 from 77 countries, we find announcements of government social distancing measures have a direct negative effect on stock market returns due to their adverse effect on economic activity, while an indirect positive effect through the reduction in COVID-19 confirmed cases. Government announcements regarding public awareness programs, testing and quarantining policies, and income support packages largely result in positive market returns. Our findings have important policy implications, primarily by showing that government social distancing measures have both positive and negative economic impact.

Keywords: COVID-19; Coronavirus; Government interventions; Pandemic; SARS-CoV-2; Social distancing; Stock market.