Does the stringency of government interventions for COVID19 reduce the negative impact on market growth? Evidence from Pacific and South Asia

ABSTRACT

The objective of this study is to empirically assess the effect of government decisions on market growth in response to social distancing initiatives, government reactions, economic support provision, and containment and health responses, to name a few. A panel dataset of daily stock market returns is analysed in this study, changes in COVID-19 cases, and government responses to 17 countries in the Pacific and South Asia from 1st January 2020 to 31st December 2020. Findings indicate that social distancing policies have a significant negative effect on stock returns but a substantial positive impact on market growth when new cases' growth rate declines after accounting for country characteristics and systematic risk due to foreign factors. A direct negative effect is seen almost immediately, and a subsequently indirect positive effect is noted. As expected, policies regarding social distancing have an immediate negative impact, attributed mainly to the expected negative effect on economic activity. Subsequently, we see an indirect positive effect on market return because social distancing measures reduced the growth of confirmed COVID-19 cases. Both awareness, containment, and health index (ACHI) and Income Support and Debt Relief Index (ISDRI) positively affect market growth, as they are perceived to support individuals' socio-economic well-being and mainly result in positive market returns. © 2021 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.