The Financial Pandemic: COVID-19 and Policy Interventions on Rational and Irrational Markets
49 Pages Posted: 3 May 2020
Date Written: April 30, 2020
Financial markets are useful indicators of public beliefs and dispersed knowledge on future outcomes and policy efficiency, especially in periods of uncertainty. 51 national stock markets successfully absorb publicly available information regarding COVID-19 and anticipate policy measures being taken to address the pandemic. The financial markets imply national lockdown policies, as well as monetary or fiscal stimuli, are counterproductive measures while targeted regional lockdowns can be effective. The fundamental effect of the pandemic is relatively low, sentiment and irrational panic play a greater role, while the most significant drivers of negative stock returns are policy interventions.
Keywords: COVID-19, event studies, policy intervention, financial market, efficient market hypothesis, SIR model
JEL Classification: E44, E63, G14, G15, G18, I18
Suggested Citation: Suggested Citation