The impact of COVID-19, containment measures, and central bank monetary policy on the US stock market

Abstract

Using daily data on COVID-19 growth rates, government stringency index, central bank monetary policy interventions and stock excess returns from January 1, 2020, to June 30, 2021, this study finds the COVID-19 epidemic had a negative impact on the S&P 500 and its stock constituents. The results show that both government containment measures and central bank monetary interventions fail to mitigate the adverse impact of COVID-19 on the US stock market. In the cross-industry analysis, financials, real estate, and technology sectors are the most disturbed by government containments, while consumer staples and utilities are the least sensitive to the variations of containments strictness. The empirical findings demonstrate that most of the central bank monetary policies do not alleviate the impact of the pandemic on equitymarkets. However, lending operations help mitigating such adverse impact. These results have crucial implications for investor decision-making, as well as providing valuable suggestions for central banks to further improve their policy instruments and design new policy packages to support the economy during unexpected crisis.

Date of Award	6 Jul 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Carla Sofia Caeiro Soares (Supervisor)