Stock returns, government response strategies, and daily new case bursts during COVID ‐19: A cross‐country perspective

ABSTRACT

The purpose of the current research is to examine the influence of COVID-19 pandemic related governmental policies and the bursts (e.g., drastic increases in cases during certain periods) of COVID-19 cases on the abnormal returns of 725 hospitality and entertainment companies from the United States (US), China, the United Kingdom (UK), India, Thailand, Turkey, Mexico, and France. The study uses daily data from January 1, 2020, to November 20, 2021 and event study methodology. Our results offer the following insights. First, the response in the early days of COVID-19 was negative for both the hospitality and entertainment sectors. Second, regarding government response strategies (1) announcements of stimulus packages negatively affected China's entertainment and the UK's hospitality and entertainment sectors, but positively impacted the US's hospitality sector;(2) lockdown announcements adversely affected abnormal returns only in the US's hospitality and entertainment sectors;and (3) travel restrictions affected the US hospitality and Chinese and Indian entertainment sectors in the early stages of the pandemic. Third, regarding COVID-19 case bursts, the results showed more negative abnormal returns during the first burst in the developed countries compared to undeveloped countries, while in the second burst, investors reacted more rationally, resulting in less negative abnormal returns. Conversely, more negative abnormal returns were found in the second bursts in India and Turkey. We conclude that COVID-19's impact differed between developed and developing countries. Our findings suggest that investors should consider these differential effects when devising their portfolio strategies during COVID-19 or the similar situations.