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

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 lev...

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Bibliographic Details
Published in:Journal of public affairs 2023-02, Vol.23 (1), p.e2823-n/a
Main Authors: Bhattacharjee, Nayanjyoti, De, Anupam
Format: Article
Language:English
Subjects:
COVID-19
equity market sentiment
Fear & phobias
Government
government policy response
India
Markov‐switching model
Pandemics
Securities markets
Speculation
Volatility
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Summary: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.
ISSN:1472-3891
1479-1854
DOI:10.1002/pa.2823