European Stock Markets’ Response to COVID-19, Lockdowns, Government Response Stringency and Central Banks’ Interventions

31 Pages Posted: 16 Feb 2021

See all articles by Ghulame Rubbaniy

Ghulame Rubbaniy

Zayed University - College of Business

Ali Awais Khalid

University of Lahore (UOL) - Lahore Business School

Muhammad Umar

School of Economics and Management, East China Jiaotong University

Nawazish Mirza

La Rochelle Business School

Date Written: February 14, 2021

Abstract

Using daily data of COVID-19 fear index and stock indices of 29 European countries over the period from January 1, 2020 to September 17, 2020, this study finds no evidence of adverse impact of COVID-19 outbreak on European stock markets at the level of full sample nor at European sub-regional levels. However, we report a significantly negative time-varying reaction of European stock markets to COVID-19 eruption. Our results document that the response of European stock markets to oil price shocks is dependent on the choice of the proxy; and exchange rate changes have a negative influence on European stock markets. Our study provides the evidence that neither lockdowns nor the stringent measures taken by the governments to improve effect of COVID-19 on European stock markets are effective. The findings of the study reveal that most of the temporary interventions by the central banks of different European countries do not improve the adverse impact of COVID-19 on European stock markets. However, some of the financial measures by central banks (e.g., reduction in capital buffers) help mitigating the adverse impacts of COVID-19 on European stock markets. Our findings have important implications for investors in their decision making and, for policy makers and central banks in terms of improving their quantitative easing to support European stock markets during turbulent times such as pandemics.

Keywords: COVID-19 fear index; Oil price volatility; Central banks’ intervention; Governments’ response stringency

JEL Classification: E44, E58, G15, G18

Suggested Citation

Rubbaniy, Ghulame and Khalid, Ali Awais and Umar, Muhammad and Mirza, Nawazish, European Stock Markets’ Response to COVID-19, Lockdowns, Government Response Stringency and Central Banks’ Interventions (February 14, 2021). Available at SSRN: https://ssrn.com/abstract=3785598 or http://dx.doi.org/10.2139/ssrn.3785598

Ghulame Rubbaniy (Contact Author)

Zayed University - College of Business ( email )

Zayed University
P.O. Box 144534
Abu Dhabi
United Arab Emirates

Ali Awais Khalid

University of Lahore (UOL) - Lahore Business School ( email )

1-KM Bopatian Chowk, Defence Road
Lahore, Punjab 54000
Pakistan

Muhammad Umar

School of Economics and Management, East China Jiaotong University ( email )

Chengbei Development District
Nanchang, Jiangxi 330013
China
+8615970457020, +923354506802 (Phone)
330013 (Fax)

Nawazish Mirza

La Rochelle Business School ( email )

102 rie de Coureilles
Les Minimes
La Rochelle, 17024
France

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