Sectoral Performance and the Government Interventions during COVID-19 Pandemic: Australian Evidence

Abstract

This study explores the contrasting impacts of the COVID-19 pandemic on various industries in Australia. Considering all daily announced information, we analyzed the diverse impacts of COVID-19 on the sectoral stock returns from 26 January to 20 July 2020. Sixteen out of twenty examined stock indices negatively react to the daily rise in COVID-19 confirmed cases. Several actions from the Australian government to control the pandemic are relatively ineffective in boosting the overall financial market; however, some positive interactions are captured in five sectors of industrials, health care, metals and mining, materials, and resources. The result shows that all industries that benefited from government financial assistance are either shielded or less severely affected by the pandemic. While sectors that did not directly receive financial remedies relatively showed no enhancement in their overall performance. Having achieved short-term success in helping the economy, the government recorded an all-time high deficit since 2004 that might eventually lead to adverse effects on the overall economy. The Australian equity market is found to be rationally distinct to the crude oil price risk, while positive correlations between AUD/USD rate and real estate-related sectors are reported.

Impact of government policy responses of COVID‐19 pandemic on stock market liquidity for Australian companies

“…This is attributed to the fact of supply and demand disorder especially after the cancellation of large number of pre‐booked flights and the decline in the use of transportation vehicles. In conformity with Corbet, Larkin, and Lucey ( 2020 ), Xiong et al ( 2020 ) and Huynh et al ( 2021 ), the response to the COVID‐19 outbreak was stronger in industries that are directly vulnerable to the pandemic's effects. This led investors to have pessimistic views about the market, and caused a decline in trading as well as in share prices.…”

“…This is associated to the fact of increasing demand for medical equipment and medicine (Alam et al, 2021 ; Al‐Awadhi et al, 2020 ). According to Huynh et al ( 2021 ), the increased expenditures on medical equipment and research coupled with an expected future spending could raise confidence to invest more in this sector, which in turn enhances its stock market liquidity.…”

“…This positive performance is associated to the increasing demand for distance learning and online working. The consequences of travel restrictions and social distancing have helped in accelerating the development of online connection services which in turn encourage investors to have good prospects for this industry (Huynh et al, 2021 ). On the other hand, international travel control could affect the performance of the technology industry because of delay to shipments of electronic goods.…”

Openness, economic uncertainty, government responses, and international financial market performance during the coronavirus pandemic

“…Some recent empirical studies document the relationship between COVID-19 data and the global equity markets. Most of these papers focus on specific countries or group of countries, such as the U.S stock market ( Ramelli and Wagner, 2020 , Schoenfeld, 2020 ) Chinese market ( Al-Awadhi et al, 2020 ), Australian market ( Huynh et al, 2021 ), emerging markets ( Topcu and Gulal, 2020 ), or developed markets ( Cepoi, 2020 ). Considering the freedom factor, Erdem (2020) posits that the negative consequences of the COVID-19 crisis on the stock markets are less in liberated nations.…”

US policy responses to the COVID-19 pandemic and sectoral stock indices: A fractional integration approach

“…This implies mean reversion, which is not consistent with the market efficiency hypothesis according to which prices should be unpredictable. Mazey andRichardson, 2020) and Australia (see Huynh et al, 2021), the present study is the first to analyse this issue for the US. Second, the chosen econometric framework allows the degree of integration to take fractional as well as integer values and thus encompasses a greater range of stochastic processes and is more general and flexible than the standard approach based on the classical I(0) versus I(1) dichotomy used in previous studies on this topic.…”