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Stock market reactions to COVID-19 lockdown: A global analysis

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  • Scherf, Matthias
  • Matschke, Xenia
  • Rieger, Marc Oliver

Abstract

The COVID-19 pandemic has caused dramatic changes in the way people around the globe live, and has had a profound negative impact on the global economy. Much of this negative impact did not result from the disease itself, but from the lockdown restrictions imposed to contain the spread of the virus. We investigate how national stock market indices reacted to the news of national lockdown restrictions in the period from January to May 2020. We find that lockdown restrictions led to different reactions in our sample of OECD and BRICS countries: there was a general negative effect resulting from the increase in lockdown restrictions, but we find strong evidence for underreaction during the lockdown announcement, followed by some overreaction that is corrected subsequently. This under-/overreaction pattern, however, is observed mostly during the first half of our time series, pointing to learning effects. Relaxation of the lockdown restrictions, on the other hand, had a positive effect on markets only during the second half of our sample, while for the first half of the sample, the effect is negative.

Suggested Citation

  • Scherf, Matthias & Matschke, Xenia & Rieger, Marc Oliver, 2022. "Stock market reactions to COVID-19 lockdown: A global analysis," Finance Research Letters, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:finlet:v:45:y:2022:i:c:s1544612321003019
    DOI: 10.1016/j.frl.2021.102245
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    2. Iyer, Subramanian Rama & Simkins, Betty J., 2022. "COVID-19 and the Economy: Summary of research and future directions," Finance Research Letters, Elsevier, vol. 47(PB).
    3. Ahmed Baig & Jason Berkowitz & Ronald Jared DeLisle & Todd Griffith, 2023. "COVID‐19 intensity across U.S. states and the liquidity of U.S. equity markets," The Financial Review, Eastern Finance Association, vol. 58(2), pages 235-259, May.
    4. Maran, Raluca, 2022. "Reaction of the Philippine stock market to domestic monetary policy surprises: an event study approach," MPRA Paper 114855, University Library of Munich, Germany.
    5. Josua Sinaga & Ting Wu & Yu-wang Chen, 2022. "Impact of government interventions on the stock market during COVID-19: a case study in Indonesia," SN Business & Economics, Springer, vol. 2(9), pages 1-35, September.
    6. O'Donnell, Niall & Shannon, Darren & Sheehan, Barry, 2023. "A vaccine for volatility? An empirical analysis of global stock markets and the impact of the COVID-19 vaccine," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    7. Plastun, Alex & Sibande, Xolani & Gupta, Rangan & Ji, Qiang, 2024. "Price effects after one-day abnormal returns and crises in the stock markets," Research in International Business and Finance, Elsevier, vol. 70(PA).
    8. Francisco Jareño & María-Isabel Martínez-Serna & María Chicharro, 2023. "Government Bonds and COVID-19. An International Evaluation Under Different Market States," Evaluation Review, , vol. 47(3), pages 433-478, June.
    9. Samuel Tabot Enow, 2022. "Overreaction And Underreaction During The Covid-19 Pandemic In The South African Stock Market And Its Implications," Eurasian Journal of Business and Management, Eurasian Publications, vol. 10(1), pages 19-26.
    10. Celso-Arellano, Pedro & Gualajara, Victor & Coronado, Semei & Martinez, Jose N. & Venegas-Martínez, Francisco, 2023. "Impact of the global fear index (covid-19 panic) on the S&P global indices associated with natural resources, agribusiness, energy, metals and mining: Granger Causality and Shannon and Rényi Transfer ," MPRA Paper 117138, University Library of Munich, Germany, revised 06 Feb 2023.
    11. Li, Yanshuang & Shi, Yujie & Shi, Yongdong & Yi, Shangkun & Zhang, Weiping, 2023. "COVID-19 vaccinations and risk spillovers: Evidence from Asia-Pacific stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
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    More about this item

    Keywords

    Stock markets; COVID-19;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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