Stock Market Reactions to Lockdown Announcements : An Empirical Event Study Measuring Abnormal Returns on Oslo Stock Exchange during the COVID-19 Pandemic

Abstract

Our study investigates the effect of COVID-19 lockdown announcements on the Norwegian stock market, using the event study methodology over multiple events to measure abnormal returns for the OBX Total Return Index and a sample of its constituents. The study differs from existing literature by investigating three different announcement types, implementation of new measures, continuation of measures and easing measures. The results of the study present several findings. Firstly, the OBX Total Return Index and the majority of the securities reacted significantly for the first of each event type, when uncertainty of the pandemic was at its highest. We also found signs of overreaction when the first measures were implemented by the Norwegian Government. Further on, the results in this study exhibit abnormal returns for the announcements regarding extensive changes of lockdown measures. Moreover, we find evidence of negative reactions for continuation events, and positive reactions for easing events. The implementation events display significant market reactions on the event day, however, showing no unambiguous direction with both positive and negative abnormal returns. Finally, our results display that the most severe easing event indicates significant results, even though the event occurred at the final stage of the pandemic. Overall, our study reveals significant abnormal returns for announcements regarding extensive changes and supports the semi-strong form of the efficient market hypothesis.