Government Fighting Pandemic, Stock Market Return, and COVID-19 Virus Outbreak

We investigate the effect of the governments' responses to fighting the COVID-19 pandemic on the returns in the stock market index. Panel data of 20 countries are used spanning January 2 to July 21, 2020, for the dynamic panel model. The results indicate that the overall government response, containment and health, and stringency indices have a significantly positive effect on stock market returns. Specifically, government policy responses of shutting down workplaces, canceling public events, restricting public gatherings and international travel, providing income support, and implementing fiscal measures can increase stock market returns. Our evidence shows that the stock market does not react significantly to government interventions in the health system. We believe that our findings provide valuable information for policymakers and financial investors around the world.

Automated summary

Government responses to the COVID-19 pandemic have a significant impact on stock market returns, with certain policy measures effectively increasing returns in the stock market. The stock market does not significantly react to government interventions in the health system, providing valuable information for policymakers and financial investors worldwide.