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Can direct government intervention save the stock market?

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  • Nguyen, Tien-Trung
  • Wu, Yang-Che
  • Ke, Mei-Chu
  • Liao, Tung Liang

Abstract

With the aim of restoring the investors’ confidence during the 2008 Global Financial Crisis, the Taiwan government bought 47 blue-chip stocks in the Taiwan Stock Exchange. Our study examines the effect of the government intervention across four periods, including the pre-event, event, holding, and selling periods, the first exploring the stock price behavior during the holding period in the literature. During the holding period, the cumulative average daily abnormal returns (CAAR) curves of the intervened stocks sharply rise while its market volatility begins to decrease. Next, the intervention effect does spread to the non-intervened stocks, and the shareholders of the non-intervened stocks do benefit almost as much as those of the intervened stocks. The policy implications of our results are that the government can save the stock market by setting the holding period in its measures and by concentrating on purchasing a limited number of blue-chip stocks.

Suggested Citation

  • Nguyen, Tien-Trung & Wu, Yang-Che & Ke, Mei-Chu & Liao, Tung Liang, 2022. "Can direct government intervention save the stock market?," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 271-284.
    • Handle: RePEc:eee:quaeco:v:84:y:2022:i:c:p:271-284
    DOI: 10.1016/j.qref.2022.02.001
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    More about this item

    Keywords

    Government intervention; Event study; Volatility; Spillover effect; Cointegration;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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