IMPACT OF COVID-19 PANDEMIC AND GOVERNMENT INTERVENTION ON SHARE MARKET: EVIDENCE FROM SRI LANKA

Abstract

The rapid spread of the COVID-19 outbreak throughout the world has triggered the countries into a severe crisis creating economic and financial uncertainties. Since it is still underway, analysts and experts worldwide are trying to capture its impact on the economy. This paper explores the effect of the COVID-19 outbreak and the government intervention measures to control the disease on the stock market in Sri Lanka. This paper seeks daily data from 30th March 2020 to 30th August 2021 on confirmed COVID cases, COVID deaths, All Share Price Index data, the Oxford COVID-19 Government Response Tracker (OxCGRT), exchange rate, and nationwide lockdowns. The regression results confirm a significant positive impact of the daily COVID-19 cases on the stock market, whereas the daily confirmed deaths do not significantly impact the share market in Sri Lanka. The study also discloses that the nationwide lockdowns and depreciation of the rupee value against the US dollar significantly negatively affected the stock market. Moreover, the lockdown policies, regardless of how strict they are, had a significant positive impact on the stock market in Sri Lanka. This study is the first to explore the influence of the COVID-19 outbreak and the Government’s disease control measures to provide a way forward on appropriate policy decisions aimed at developing the financial market. The policymakers should develop the most appropriate policies to protect the financial market and the economy in a critical situation like the COVID-19 health pandemic.