Stock market responses to government policies during the COVID-19 pandemic: A case study of an emerging economy

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Abstract

This research delves into the dynamics of Vietnamese stock market performance during the COVID-19 pandemic, specifically examining how firm characteristics and government responses influenced stock returns. Analyzing a comprehensive panel dataset of 523 Vietnamese firms spanning from the first quarter of 2020 through to the first quarter of 2021, our findings reveal a discernible impact of the pandemic on the stock market. We observed a negative correlation between stock returns and the increase in COVID-19 confirmed cases and deaths, indicating a tangible market sensitivity to the pandemic’s severity. Furthermore, the study underscores the significant role of firm-specific financial metrics — profitability, valuation, and sales growth — in shaping stock market returns during this period. A pivotal aspect of our research is the evaluation of government interventions. We found that while comprehensive government strategies to combat COVID-19 generally bolstered firm stock prices, the implementation of stringent social distancing measures had a contrasting effect, exerting downward pressure on stock returns. This nuanced understanding of the interplay between government actions, the progression of the pandemic, and firm-specific attributes provides valuable insights into the market’s behavior in the face of unprecedented global challenges.

Keywords: COVID-19, Stock Returns, Capital, Finance, Government Policy

Authors’ individual contribution: Conceptualization — A.P.; Methodology — A.P.; Software — M.P.N.; Validation — M.P.N.; Formal Analysis — M.P.N.; Investigation — M.P.N.; Resources — M.P.N.; Data Curation — A.P.; Writing — Original Draft — A.P.; Writing — Review & Editing — M.P.N.; Visualization — M.P.N.; Supervision — M.P.N.; Project Administration — M.P.N.; Funding Acquisition— M.P.N.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: E44, G01, G14

Received: 18.01.2024
Accepted: 11.12.2024
Published online: 16.12.2024

How to cite this paper: Phan, A., & Nguyen, M. P. (2024). Stock market responses to government policies during the COVID-19 pandemic: A case study of an emerging economy [Special issue]. Journal of Governance & Regulation, 13(4), 297–305. https://doi.org/10.22495/jgrv13i4siart8