Infected Markets: Novel Coronavirus, Government Interventions, and Stock Return Volatility around the Globe

Adam Zaremba; Renatas Kizys; David Y Aharon; Ender Demir

doi:10.1016/j.frl.2020.101597

Infected Markets: Novel Coronavirus, Government Interventions, and Stock Return Volatility around the Globe

Financ Res Lett. 2020 Jul:35:101597. doi: 10.1016/j.frl.2020.101597. Epub 2020 May 21.

Authors

Adam Zaremba^{1

2}, Renatas Kizys³, David Y Aharon⁴, Ender Demir⁵

Affiliations

¹ Department of Investment and Capital Markets, Institute of Finance, Poznan University of Economics and Business, al. Niepodległości 10, 61-875 Poznan, Poland.
² Dubai Business School, University of Dubai, Academic City, P.O. Box: 14143, Dubai, UAE.
³ Department of Banking and Finance, Southampton Business School, University of Southampton, Room 1013, Building 4, Highfield Campus, Southampton SO17 1BJ, United Kingdom.
⁴ Faculty of Business Administration, Ono Academic College, Tzahal St 104, Kiryat Ono, Israel.
⁵ Istanbul Medeniyet University, Dumlupınar D100 Karayolu No:98, 34720 Kadıköy/İstanbul, Turkey.

Abstract

Do government interventions aimed at curbing the spread of COVID-19 affect stock market volatility? To answer this question, we explore the stringency of policy responses to the novel coronavirus pandemic in 67 countries around the world. We demonstrate that non-pharmaceutical interventions significantly increase equity market volatility. The effect is independent from the role of the coronavirus pandemic itself and is robust to many considerations. Furthermore, two types of actions that are usually applied chronologically particularly early-information campaigns and public event cancellations-are the major contributors to the growth of volatility.

Keywords: COVID-19; containment and closure; government policy responses; international financial market; non-pharmaceutical interventions; novel coronavirus; stock market volatility.