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Saved by the bell? Equity market responses to surprise Covid-19 lockdowns and central bank interventions

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  • Aakriti Mathur

    (The Graduate Institute of International and Development Studies)

  • Rajeswari Sengupta

    (Indira Gandhi Institute of Development Research)

  • Bhanu Pratap

    (Reserve Bank of India)

Abstract

Negative equity market reactions at the onset of the Covid-19 crisis raised concerns about the vulnerabilities in non-financial firms, requiring swift actions by central banks to prevent system-wide stresses. We investigate the Indian context, where the announcement of a surprise, nationwide lockdown in March 2020, was followed by the announcement of an unanticipated policy package by the central bank a few days later. Using natural language processing on quarterly earnings call reports, we construct a firm-specific measure of concern about the pandemic for a set of Indian non-financial firms. We find that firms that were exposed to the pandemic in early 2020 had worse stock market performance when the lockdown was announced. These results are explained by the implications of pandemic-related uncertainty for the future cash flows of these firms. The central bank's policy package seemed to have reversed the impact of the lockdown announcement in the short-term.

Suggested Citation

  • Aakriti Mathur & Rajeswari Sengupta & Bhanu Pratap, 2022. "Saved by the bell? Equity market responses to surprise Covid-19 lockdowns and central bank interventions," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-001, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2022-001
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    References listed on IDEAS

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    More about this item

    Keywords

    Covid-19; event study; earnings calls; firm performance; uncertainty; central bank policies;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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