Stock Market Stimulus

By: Robin Greenwood, Toomas Laarits and Jeffrey Wurgler

Format:Electronic
| Language:English

Abstract

The stock market crash in March 2020 was followed by a historic rebound, particularly among stocks favored by retail investors. We study the effects of the arrival of the three rounds of “stimulus checks” to U.S. taxpayers and the single round of direct payments to Hong Kong citizens. The first two rounds of payments in the U.S. appear to have increased retail buying and share prices of retail-dominated portfolios. The Hong Kong payments increased overall market turnover and share prices in Hong Kong and mainland Chinese markets, especially in large-cap portfolios. We cannot rule out that these price effects were permanent. The findings raise novel questions about the role of fiscal stimulus in the stock market.