Hang in There: Stock Market Reactions to Withdrawals of COVID-19 Stimulus Measures

December 18, 2020

Preview Citation

Format: Chicago

Jorge A Chan-Lau, and Yunhui Zhao. Hang in There: Stock Market Reactions to Withdrawals of COVID-19 Stimulus Measures, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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 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.

Subject: Economic sectors, Financial crises

Keywords: COVID-19, Event study, Exit strategy, Stock prices

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/285
Stock No:

WPIEA2020285
ISBN:

9781513564753
ISSN:

1018-5941

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