| dc.description.abstract | The ongoing COVID-19 brought unprecedented and far-reaching effects on the economies that forced the governments to take crucial and stringent policy measures for tackling the situation. These events also affect the stock market worldwide. To understand the response of the Nordic governments, we examine the impact of these government response policies on the stock market returns from the onset of the pandemic until January 2022. For this, we used three indices that are composite of different measures of response policies namely, the Stringency Index, Containment & Health Index and Economic Support Index. Additionally, data is gathered on confirmed cases and deaths to examine the effect of all these variables on the stock markets. Through this, the study covers the direct main effects as well as the indirect effects via interaction term variables.
We find that the effect of increasingly stringent policies had a direct negative impact on stock market returns. However, when accounting for the interaction effects, we find that increased stringent policies had a positive effect on stock market returns, as channelled through the reduction of growth in confirmed cases. Moreover, the findings show that increased stringent policies enhanced negative effects on stock market returns when channelled through a reduction of growth in confirmed deaths. The peculiar efficacy of interaction variables provides important policy implications so as governmental policy interventions. The effects of government interventions are complex and require a multifaceted evaluation as confirmed by our study. The markets in the Nordics behaved similarly to the rest of the developed regions but have not been adequately studied. | |