Pandemics: Government Interventions and Financial Markets Oscillations

Abstract

The outbreak of the COVID-19 pandemic was highly contagious and people from almost more than 165 countries were affected by this virus. The pandemic has upended daily routines and business operations in an unprecedented manner, unlike any event in modern history. In response, governments worldwide have implemented policies and measures related to pandemic aimed at instilling stability. Although the pandemic is over, there are news about the new variants of Covid that may go uncontrolled and the world may again enter into the Covid-19 like situation. During Covid-19, governments from all the countries took various measures like the execution of lockdown, emergency, public safety announcements, health measures, and income support packages to support the people. This study investigates the impact of government interventions on fifteen equity and debt markets around the world during time of Covid-19. The methodology of event study is used in this research. A comparative study has been conducted between high-income, upper-middle-income, and lower-middle-income countries, using the stock and bond markets data. The findings show the impact of lockdown announcements and policy rate changes on bond markets of high-income countries is not much significant whereas upper middle & lower-middle-income countries adversely responded to the government announcements. On the other hand, stock markets of all the countries showed a negative reaction to the lockdown announcements, however, the intensity of the negative effect of reduction in policy rate is more severe in the high-income countries as compared to the upper middle & lower-middle-income countries.