Does government stringency policy reduce the adverse effects of COVID-19 on Islamic stock?

Abstract

Over recent years, the stock market has developed into one of the sources of economic development. However, the COVID-19 pandemic has altered the game, resulting in a decline in stock performance. As countries implement initiatives aimed at reviving the economy, it raises the question of whether the government’s intervention, as reflected in the composition of government stringency, influences long-term stock price. Given the question, this study aims to examine if government stringency, which may adversely impact economic activities, brings more confidence to the Islamic stock markets from July 2020 to June 2021 amid the COVID-19 pandemic. Panel autoregressive distributed lag (ARDL) estimation results show that government stringency does not help bring certainty and confidence to Islamic stock performance. As a result, we suggest that policymakers and the government should reconsider the imposition of stringent policies, especially on the restricted movement, as it is not only harmful to the economy at large but does not contribute to supporting stock performance.