Research Paper on Evidence from the OECD on National Governance Quality, COVID-19, and Stock Index Returns

Description

Title: Evidence from the OECD on National Governance Quality, COVID-19, and Stock Index Returns

Abstract: According to this study, the level of national governance may moderate the connection between COVID-19 and stock returns in various markets. We concentrate on how the effectiveness of a country’s governance system affects the relationship between the COVID-19 crisis and stock returns, building on the well-established relationship between the COVID-19 shock and stock returns. Our results support this hypothesis using information from the World Governance Indicators, the World Bank, and the John Hopkins University Coronavirus Resource Centre (JHU-CRC) for 29 OECD markets from 23 January to 31 December 2020. Our findings indicate that, at the 5% level of significance, the estimated coefficient on the interaction term is statistically different from zero and negative (0.004). From this finding, it can be deduced that the COVID-19’s impact on stock returns will be weaker the higher the quality of the country’s governance. Particularly, COVID-19’s detrimental effect on stock market returns was more pronounced in nations with lower national governance quality indices. Additionally, the sample as a whole demonstrates a strong negative correlation between COVID-19 and stock market returns. The findings hold up well to adjustments in estimation techniques, explanatory variables, and governance quality metrics. The findings have a number of implications for policy, including the possibility that stronger institutions could partially mitigate the negative effects of the COVID-19 shock on stock market returns.

Keywords: national governance quality; stock index returns; COVID-19; OECD markets

Paper Quality: SCOPUS / Web of Science Level Research Paper

Subject: Economics

Writer Experience: 20+ Years

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