Stock Markets’ Reaction to COVID-19 : the Joint Impact of Uncertainty Avoidance Culture and Government Response – Evidence from Emerging Countries
We examine whether the uncertainty avoidance culture and the stringency of government response play a role in shaping the stock market’s response to COVID-19. We find that: Investors’ response to the pandemic will not only depend on their instinct of uncertainty aversion but also on their expectation about the effectiveness of the government measures. The uncertainty avoidance culture amplifies the irrational actions of investors. However, harsh government responses will weaken this effect. Harsh government responses also send a negative signal to the market about the extent of the pandemic and the economic damage caused by anti-COVID measures. Governments need to be balanced in imposing anti-COVID measurements to preserve market confidence