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The policy response to COVID-19 pandemic and its impact on the equity market sentiment: The Indian experience.

ABSTRACT: We examine the dynamics of the impact of the evolving policy response during the COVID-19 pandemic on the equity market sentiment in India. We operationalise our study by examining the India VIX, the fear gauge of the Indian equity market as an indicator for the market sentiment, and the country level Government Response Index of the Blavatnik School of Government, Oxford University as an indicator for the policy response. The relation is examined through the Markov-switching model using high-frequency daily data from January 30, 2020, to May 31, 2021. The evidence suggests that the policy response has a positive impact on the market sentiment when the market is fearful. Further, the evidence suggests that both the high-fear state and the low-fear state of the market sentiment given by the model are short-lived indicating heightened volatility and possible speculation during the ongoing pandemic in the Indian equity market.

SUBMITTER: Bhattacharjee N

PROVIDER: S-EPMC9349953 | biostudies-literature | 2022 Jun

REPOSITORIES: biostudies-literature

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The policy response to COVID-19 pandemic and its impact on the equity market sentiment: The Indian experience.

Bhattacharjee Nayanjyoti N De Anupam A

Journal of public affairs 20220616

We examine the dynamics of the impact of the evolving policy response during the COVID-19 pandemic on the equity market sentiment in India. We operationalise our study by examining the India VIX, the fear gauge of the Indian equity market as an indicator for the market sentiment, and the country level Government Response Index of the Blavatnik School of Government, Oxford University as an indicator for the policy response. The relation is examined through the Markov-switching model using high-fr ...[more]

PMID: 35942249

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Project description:Financial crises inflict significant human as well as economic hardship. This paper focuses on the human fallout of capital market stress. Financial stress-induced behavioral changes can manifest in higher suicide and murder-suicide rates. We find that these rates also correlate with the Gross Domestic Product (GDP) growth rate (negatively associated; a -0.25% drop [in the rate of change in annual suicides for a +1% change in the independent variable]), unemployment rate (positive link; 0.298% increase), inflation rate (positive link; 0.169% increase in suicide rate levels) and stock market returns adjusted for the risk-free T-Bill rate (negative link; -0.047% drop). Suicides tend to rise during periods of economic turmoil, such as the recent Great Recession of 2008. An analysis of Centers for Disease Control and Prevention (CDC) data of more than 2 million non-natural deaths in the US since 1980 reveals a positive correlation with unemployment levels. We find that suicides and murder-suicides associated with adverse market sentiment lag the initial stressor by up to two years, thus opening a policy window for government/public health intervention to reduce these negative outcomes. Both our models explain about 73 to 76% of the variance in suicide rates and rate of change in suicide rates, and deploy a total of four widely available independent variables (lagged and/or transformed). The results are invariant to the inclusion/exclusion of 2008 data over the 1980-2016 time series, the period of our study. The disconnect between rational decision making, induced by cognitive dissonance and severe financial stress can lead to suboptimal outcomes, not only in the area of investing, but in a direct loss of human capital. No economic system can afford such losses. Finance journal articles focus on monetary alpha, which is the return on a portfolio in excess of the benchmark; we think it is important to be aware of the loss of human capital as a consequence of market instability. This study makes one such an attempt.

Dataset Information

The policy response to COVID-19 pandemic and its impact on the equity market sentiment: The Indian experience.

Publications

The policy response to COVID-19 pandemic and its impact on the equity market sentiment: The Indian experience.

Similar Datasets

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