Stock market reactions to COVID-19 lockdown: A global analysis

The COVID-19 pandemic has caused dramatic changes in the way people around the globe live, and has had a profound negative impact on the global economy. Much of this negative impact did not result from the disease itself, but from the lockdown restrictions imposed to contain the spread of the virus. We investigate how national stock market indices reacted to the news of national lockdown restrictions in the period from January to May 2020. We find that lockdown restrictions led to different reactions in our sample of OECD and BRICS countries: there was a general negative effect resulting from the increase in lockdown restrictions, but we find strong evidence for underreaction during the lockdown announcement, followed by some overreaction that is corrected subsequently. This under-/overreaction pattern, however, is observed mostly during the first half of our time series, pointing to learning effects. Relaxation of the lockdown restrictions, on the other hand, had a positive effect on markets only during the second half of our sample, while for the first half of the sample, the effect is negative.