Government’s responses and performance of stock markets during COVID-19: Evidence from ASEAN stock markets

Abstract

This study aims to investigate the effects of government interventions on stock market performance of six countries within the ASEAN region that experienced the greatest impact during the COVID-19 pandemic in two aspects: stock returns and stock volatilities. The paper uses government response index and its components, including stringency index, containment and health index and economic support index as proxies for government actions. The paper first applies the GARCH(1,1) model to extract the volatilities of the studied stock markets. Subsequently, a panel regression model with fixed random effect is adopted to analyze how the performance of stock markets is influenced by government policy responses. The empirical results suggest that government’s interventions exert positive, significant effect on the stock returns of ASEAN markets. Additionally, the stock markets are more volatile under the implementation of restriction policies and containment and health policies, whereas the economic support policies are associated with decreased volatilities. The overall effect of government response policies also boosts the volatility of ASEAN stock markets. Our findings provide essential and reliable evidence for policymakers and stakeholders to alleviate the profound impact of the widespread COVID-19 outbreak.