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Trust and the stock market reaction to lockdown and reopening announcements: A cross-country evidence

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  • Xie, Lijuan
  • Wang, Mei
  • Huynh, Toan Luu Duc

Abstract

We conduct a country-level analysis with a sample of 44 countries to examine whether generalised social trust has an impact on the stock market reaction to government announcements of lockdown and reopening during the COVID-19 pandemic. We first conduct an event study to measure the global stock markets’ reaction to government announcements of lockdown and reopening, which is measured by each stock market's cumulative abnormal return. We then employ regression analysis to investigate the relationship between generalised social trust and the stock markets’ reaction to government announcements of lockdown and reopening. The results show that government announcement of lockdown had a significant negative influence on most of the stock markets, whereas the magnitude of the stock markets’ reaction to government announcement of reopening is relatively marginal, indicating a possible negative bias. Moreover, we find that generalised social trust is positively related to the stock markets’ reaction to government announcement of lockdown and negatively related to the stock markets’ reaction to government announcement of reopening.

Suggested Citation

  • Xie, Lijuan & Wang, Mei & Huynh, Toan Luu Duc, 2022. "Trust and the stock market reaction to lockdown and reopening announcements: A cross-country evidence," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s1544612321003640
    DOI: 10.1016/j.frl.2021.102361
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    More about this item

    Keywords

    COVID-19; Stock market reactions; Generalized social trust;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G3 - Financial Economics - - Corporate Finance and Governance

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