The Impact of Government Actions on Share Prices during the COVID-19 Pandemic – A cross-industry comparison in eight European countries –

Abstract

The COVID-19 outbreak marked the beginning of an uncertain economic period, which impacted all share prices drastically. This uncertainty was reflected not only in stock markets but also in the reactions of governments. As little was known about the virus, government strategies on how to handle the new situation differed across countries. This paper investigates whether the different government actions taken can explain the different share price developments across industries and sectors in eight European countries during the COVID-19 pandemic. It contributes to the existing literature by using company-level data over a time period that includes both the first and second waves of COVID-19 infections in Europe. While companies in the Consumer Goods and Consumer Services industries recovered more slowly, companies in the Health Care and Technology industries recovered faster from the initial stock market shock in February and March 2020. As different industries were impacted in different ways, we ran both country and industry panel regressions to capture the effect of government actions both across industries within a country, and within an industry across countries. Overall, we observe a negative effect of increasing COVID-19 infections on share prices across countries and industries. While more restrictive measures affect share prices negatively in several countries and industries, economic support shows a positive effect in only a few countries and industries. Although government actions seem to play a small role in share price developments in the short- to medium-term, the magnitude of actions may have a lasting impact on the economic development and thus share prices in the long-term.