Infected Markets: Novel Coronavirus, Government Interventions, and Stock Return Volatility around the Globe

TLDR

Government interventions to curb COVID‑19 spread may impact stock market volatility. The study investigates whether policy stringency in 67 countries affects equity market volatility. The authors analyze the stringency of non‑pharmaceutical interventions across 67 countries. Non‑pharmaceutical interventions significantly raise equity market volatility, independently of the pandemic itself, with early information campaigns and event cancellations being the main drivers.

Abstract

Do government interventions aimed at curbing the spread of COVID-19 affect stock market volatility? To answer this question, we explore the stringency of policy responses to the novel coronavirus pandemic in 67 countries around the world. We demonstrate that non-pharmaceutical interventions significantly increase equity market volatility. The effect is independent from the role of the coronavirus pandemic itself and is robust to many considerations. Furthermore, two types of actions that are usually applied chronologically particularly early-information campaigns and public event cancellations-are the major contributors to the growth of volatility.