COVID-19, Government Interventions, and Stock Return and Volatility Around the World

The COVID-19 pandemic has imparted an unprecedented shock on global stock markets. No previous pandemic has left an economic mark as significant as the COVID-19 pandemic, which has now lasted over a year and has brought about substantial changes to daily life, as well as severely impacted stock markets. This paper quantitatively examines indices from 34 stock markets in 2020, finding that returns decreased markedly in most markets during the first quarter of 2020. This study is the first to examine the impact of severity of the pandemic and strictness of government policies. It finds that stock markets of countries with a higher percentage of total infected population are more sensitive to the increase in daily new cases. In addition, countries with less strict rules tend to experience higher volatility in stock markets when governments employ stricter restrictions. This approach can be applied to further research that aims to investigate similar matters. Furthermore, although the pandemic currently shows no sign of passing, the study finds that stock markets reacted positively to measures aimed at controlling the spread of the virus and recovered significantly after the second quarter of 2020. This study also finds evidence that increases in daily new confirmed cases had a significant negative impact on stock markets but only at the onset of the pandemic. This finding suggests that investors overreacted to the pandemic and were not rational