ABSTRACT
The COVID-19 pandemic has profoundly and negatively impacted the global stock markets. Hence, we investigated the time-varying impact of the COVID-19 pandemic on stock returns during the period from January 27, 2020 to December 23, 2021 using the TVP-VAR-SV model and used G7 countries as our research sample. Our results imply that (i) the spread of the COVID-19 pandemic has a significant negative impact on stock returns, but the impact decreases as the time window increases;(ii) the timeliness, compulsoriness, and effectiveness of anti-epidemic policies implemented by governments are the important adjustment factors for stock returns;(iii) the impact of the early stage of the COVID-19 pandemic on the stock market trend gradually weakens as the intermediate time interval increases. In addition, over time, the duration of the negative impact of the COVID-19 pandemic on the stock returns became shorter, and the recovery rate of the impact became faster;(iv) under the managed floating exchange rate regime, the stock returns changed synchronously with the pressures of exchange rate appreciation and depreciation, and under the free-floating exchange rate regime, the effect of the exchange rate on stock returns was almost zero, while the impact of exchange rate channels in eurozone countries was related to the characteristics of national economies. Thus, governments should make greater efforts to improve the compulsion and effectiveness of epidemic prevention policies and strengthen their control over exchange rate fluctuations to alleviate the negative impact of the COVID-19 pandemic on the stock markets.