COVID-19 restrictions effect on volatility: How did government interventions affect global stock market volatility?

Abstract

Our thesis seeks to investigate whether or not government lockdowns attempting to stop the spread of COVID-19 affected volatility in global stock markets. To investigate this relationship, we utilize a sample of 64 countries of developed, emerging, and frontier markets along with the Oxford Containment & Health index, a measure of government closure and containment, health, and economic policies. Our findings suggest that government interventions affected volatility between 1. Jan 2020 and 12. Apr 2022, with the relationship net being consistent across segments of markets or time. For the market segments investigated, developed, emerging, and frontier markets, changes in government policy had a significant and positive effect on volatility. However, when investigating all countries in different periods, we show that the effect is not consistent over time but rather stronger in 2020 than 2021. Overall, this study contributes to policymakers and market participants in understanding the effect of the interventions over time, and across segments of markets.