Hang in There: Stock Market Reactions to Withdrawals of COVID-19 Stimulus Measures |
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| Author:
| Chan-Lau, Jorge A.
Zhao, Yunhui |
| Series title: | IMF Working Papers |
| ISBN: | 978-1-5135-6532-3 |
| Publication Date: | Dec 2020 |
| Publisher: | International Monetary Fund
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| Book Format: | Ebook |
| List Price: | USD $9.00 |
Book Description:
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The COVID-19 pandemic prompted unprecedented economic stimulus worldwide. We empirically examine the impact of a withdrawal of fiscal stimulus policies on the stock markets. After constructing a database of withdrawal events, we use event study analysis and cross-country regressions to assess the difference between the pre- and post-event stock price returns. We find that markets react negatively to premature withdrawals--defined as withdrawals at a time when the daily COVID cases are...
More DescriptionThe COVID-19 pandemic prompted unprecedented economic stimulus worldwide. We empirically examine the impact of a withdrawal of fiscal stimulus policies on the stock markets. After constructing a database of withdrawal events, we use event study analysis and cross-country regressions to assess the difference between the pre- and post-event stock price returns. We find that markets react negatively to premature withdrawals--defined as withdrawals at a time when the daily COVID cases are high relative to their historical average--likely reflecting concerns about the withdrawal impact on the prospects for economic recovery. The design of a successful exit strategy from COVID-19 policy responses should account for these concerns.