Saved by the Bell? Equity Market Responses to Surprise COVID-19 Lockdowns and Central Bank Interventions

49 Pages Posted: 4 Mar 2022 Last revised: 8 Mar 2022

See all articles by Rajeswari Sengupta

Rajeswari Sengupta

Indira Gandhi Institute of Development Research (IGIDR)

Bhanu Pratap

Reserve Bank of India

Date Written: March 3, 2022

Abstract

Negative equity market reactions at the onset of the COVID-19 crisis raised concerns about the vulnerabilities in non-financial firms, requiring swift actions by central banks to prevent system-wide stresses. We investigate the Indian context, where the announcement of a surprise, nationwide lockdown in March 2020, was followed by the announcement of an unanticipated policy package by the central bank a few days later. Using natural language processing on quarterly earnings call reports, we construct a firm-specific measure of concern about the pandemic for a set of Indian non-financial firms. We find that firms that were exposed to the pandemic in early 2020 had worse stock market performance when the lockdown was announced. These results are explained by the implications of pandemic-related uncertainty for the future cash flows of these firms. The central bank’s policy package seemed to have reversed the impact of the lockdown announcement in the short-term.

Suggested Citation

Sengupta, Rajeswari and Pratap, Bhanu, Saved by the Bell? Equity Market Responses to Surprise COVID-19 Lockdowns and Central Bank Interventions (March 3, 2022). Available at SSRN: https://ssrn.com/abstract=4049033 or http://dx.doi.org/10.2139/ssrn.4049033

Rajeswari Sengupta (Contact Author)

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Bhanu Pratap

Reserve Bank of India ( email )

Shahid Bhagat Singh Road
Mumbai
Mumbai, Maharashtra 400051
India

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