Knowing how financial markets are affected by pandemics like COVID-19 can be extremely helpful for economic activists and economic planners. Numerous studies have been conducted in this field, and in the present study we try to provide an overview. Reviewing the literature on COVID-19 and financial markets may be done from several perspectives. Here we focus on finding a common answer from among the various studies while emphasizing two points: first is the duration of the effect pandemics have on financial markets; Studies have shown that COVID-19 has a long-term effect on certain financial markets while its effect on others is only short-term.
The second involves investigating the effectiveness of government policies regarding COVID-19. The available literature can be classified into two groups. First, studies conducted in countries where governments responded to COVID-19 more rapidly and managed to prevent the disease from spreading. In these cases, the negative effects of COVID-19 were less enduring but government intervention increases long-term uncertainty and causes long-term problems in financial markets.
The second category comprises studies that have used the Oxford COVID-19 Government Response Tracker (OxCGRT) index or the Stringency Index (SI) and examined the impact of these indices on stock market returns and volatility. The predominant result in these studies is that government policy responses increase stock market volatility and decrease returns.
For the most part, government intervention seems to have been an effective way to stop the COVID-19 pandemic, but policymakers have faced a trade-off between citizens' health and stock market disruptions.
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