Impact of government interventions on the stock market during COVID-19: a case study in Indonesia

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Abstract
This paper aims to examine the short-term impact of government interventions on 11 industrial sectors in the Indonesian Stock Exchange (IDX) during the COVID-19 pandemic. Whereas earlier studies have widely investigated the impact of government interventions on the financial markets during the pandemic, there is lack of research on analysing the financial impacts of various interventions in different industrial sectors, particularly in Indonesia. In this research, five key types of government interventions are selected amid the pandemic from March 2020 to July 2021, including economic stimulus packages, jobs creation law, Jakarta lockdowns, Ramadan travel restrictions, and free vaccination campaign. Based on an event study methodology, the research reveals that the first economic stimulus package was critical in reviving most sectors following the announcement of the first COVID-19 case in Indonesia. Jakarta lockdowns impacted stock returns negatively in most sectors, but the impacts were relatively insignificant in comparison to other countries in the region. The recurrence of lockdowns in Jakarta had a minor detrimental impact, showing that the market had acclimated to the new normal caused by the COVID-19 pandemic. Additionally, Ramadan travel restrictions caused minor negative impacts on the stock market. Furthermore, the second Ramadan travel restrictions generated a significant reaction from the technology sector. Finally, while free vaccination campaign and job creation law did not significantly boost the stock market, both are believed to result in a positive long-term effect on the country’s economy if appropriately executed. The findings are critical for investors, private companies, and governments to build on recovery action plans for major industrial sectors, allowing the stock market to bounce back quickly and efficiently. As this study limits its analysis to the short-term impact of individual interventions, future studies can examine long-term and combined effects of interventions which could also help policy makers to form effective portfolios of interventions in the event of a pandemic.

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