The Impact of Government Response on the US Stock Market during the COVID-19 Pandemic

Yun Cheng, Carroll Howard Griffin, Michael Yu


Although pandemics have occurred with some degree of frequency over the past century, the degree to which social and economic pandemic-related government responses have been used across the globe during the COVID-19 pandemic period has been unprecedented. Using the S&P 500 stock market index return over the period January 2020-June 2021as our dependent variable in a regression-based model, we measure, via a Government Response Index, the extent to which government response impacted stock market returns. We also include the VIX (“fear gauge”), Market Value, Trading Volume, and Price-to-Earnings Ratios to control for other factors that may have impacted the market during the pandemic. Although we found that the VIX was highly negatively correlated with stock market returns during this period, we found very limited evidence of a significant relationship between stock market returns and government response over this time period. Thus, we believe it would be prudent for governments to be more strategic in their approach regarding initiatives if or when a future pandemic should arise, as not all government-related policy initiatives have the intended effect.

Keywords: US Financial Markets, Stock Market, Government Intervention, COVID-19.

Full Text:



Albulescu, C.T. (2020). Coronavirus and financial volatility: 40 days of fasting and fear. Available at10.2139/ssrn.3550630.

Ashraf, B.N. (2020). Economic impact of government interventions during the COVID-19 pandemic: International evidence from financial markets. Journal of Behavioral and Experimental Finance. Vol. 27, pp. 1-9.

Ashraf, B.N. (2020). Stock markets’ reaction to COVID-19: Cases or fatalities? Research in International Business and Finance. Vol. 54, pp. 1-7

Capital IQ. The data presented in this study are openly available at

Chang, C., Fengb, G., & Zheng, M. (2021). Government fighting pandemic, stock market return, and COVID-19 virus outbreak. Emerging Markets Finance and Trade, Vol. 57(8), pp. 2389–2406.

Erdem, O. (2020). Freedom and stock market performance during Covid-19 outbreak. Finance Research Letters. Forthcoming.

Hung, D.V., Hue, N.T., & Duong, V.T. (2021). The impact of COVID-19 on stock market returns in Vietnam. Journal of Risk and Financial Management. Vol. 14(441).

Lui, H., Manzoor, A., Wang, C., Zhang, L., & Manzoor, Z. (2020). The COVID-19 outbreak and affected countries’ stock markets’ response. International Journal of Environmental Research and Public Health. Vol. 17, pp. 1-17.

MacroTrends. The data presented in this study are openly available at

Mazur, M., Dang, M., & Vega, M. (2020). COVID-19 and the March 2020 stock market crash. Evidence from S&P 500”. Finance Research Letters. Forthcoming.

Mbatha, V.M. & Alovokpinhou, S.A. (2022). The structure of the South African stock market network during COVID-19 hard lockdown. Physica A, Vol. 590.

Narayan, P.K., Phan, D.H., & Liu, G. (2021). COVID-19 lockdowns, stimulus packages, travel bans, and stock returns. Finance Research Letters. Vol. 38.

Raifu, I.A., Kumeka, T., & Aminu, A. (2021). Reaction of stock market returns to COVID-19 pandemic and lockdown policy: evidence from Nigerian firms’ stock returns. Future Business Journal. Vol. 7(35).

Sharif, A., Aloui, C., & Yarovaya, L. (2020). COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach. International Review of Financial Analysis. Vol. 70, pp. 1-9.

Subramaniam, S. & Chakraborty, M. (2021). COVID-19 fear index: does it matter for stock market returns? Review of Behavioral Finance. Vol. 13(1), pp. 40-50.

Trang Anh, D.L. & Gan, C. (2020). The impact of the COVID-19 lockdown on stock market performance: evidence from Vietnam. Journal of Economic Studies. Vol. 48(4), pp. 836-851.

University of Oxford. Blavatnik School of Government. Data presented in this study are openly available from

Yahoo Finance. Data presented in this study are openly available from

Zaremba, A., Kizys, R., Aharon, D. & Demir, E. (2020). Infected markets: Novel Coronavirus, government interventions, and stock return volatility around the globe. Finance Research Letter. Vol. 35, pp. 1-7.


  • There are currently no refbacks.

International Journal of Business and Economics is licensed under a Creative Commons Attribution 4.0 International License Based on a work at

Copyright © 2016-2022 International Journal of Business and Economics (IJBE)

ISSN (online) 2545-4137

Disclaimer: Articles on International Journal of Business and Economics (IJBE) have been previewed and authenticated by the Authors before sending for the publication. The Journal, Chief Editor and the editorial board are not entitled or liable to either justify or responsible for inaccurate and misleading data if any. It is the sole responsibility of the Author concerned.