Country Responses and the Reaction of the Stock Market to COVID-19—a Preliminary Exposition

TLDR

The COVID‑19 pandemic prompted widespread country responses, including lockdowns, travel bans, and stimulus packages to mitigate economic slowdown and job loss. The article hypothesizes that stock prices react in real‑time to different stages of the COVID‑19 pandemic and calls for empirical verification. The authors analyze real‑time stock price movements across pandemic stages to assess this reaction. They find that markets initially over‑react to COVID‑19 news but gradually correct as more information becomes available.

Abstract

As the coronavirus pandemic (COVID-19) has amplified so has country responses to it. With COVID-19 taking its toll on humans, as reflected in the number of people infected by, and deaths from, COVID-19, countries responded by locking down economic activity and peoples movement, imposing travel bans, and implementing stimulus packages to cushion the unprecedented slowdown in economic activity and loss of jobs. This article provides a commentary on how the most active financial indicator – namely, the stock price – reacted in real-time to different stages in COVID-19's evolution. We argue that, as with any unexpected news, markets over-react and as more information becomes available and people understand the ramifications more broadly the market corrects itself. This is our hypothesis which needs robust empirical verification.