On the effect of COVID-19 and policy uncertainty on the stock market: evidence from India

Abstract

PurposeThe present study empirically examines the impact of coronavirus disease 2019 (COVID-19) and policy uncertainty on stock prices in India during the COVID-19 pandemic.Design/methodology/approachTo this end, the authors use the daily data by applying the autoregressive distributed lag (ARDL) model, which tests the short- and long-run relationship between stock price and its covariates.FindingsThe study finds that increased uncertainty has adverse short- and long-run effects on stock prices, while the vaccine index has favorable effects on stock market recovery.Practical implicationsFrom investors' perspectives, volatility in the Indian stock market has negative repercussions. Therefore, to protect investors' sentiments, policymakers should be concerned about the uncertainty induced by the COVID-19 pandemic and similar other uncertainty prevailing in the financial markets.Originality/valueThis study used the news-based COVID-19 index and vaccine index to measure recent pandemic-induced uncertainty. The result carries some policy implications for an emerging economy like India.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-03-2023-0244