The Impact of the COVID-19 Pandemic on Japanese Stock Markets, Revisited

This study examines the impact of the COVID-19 pandemic on Japanese stock markets using data on the 225 companies included in the Nikkei Average Index. Japan has succeeded in maintaining the number of positive cases and deaths at a relatively low level. However, the Japanese stock market declined the same as stock markets in other countries; thus, stock returns were strongly influenced by factors other than the number of cases. To search for such factors, we used the Google search volume index (SVI) as an indicator of market sentiment, and compared the model’s explanation power with the SVI and the number of new positive cases. Panel data analysis revealed that changes in the number of new positive cases and the SVI for the COVID-19 pandemic were negatively associated with stock returns for January–September 2020. However, the negative association was less obvious for changes in the number of new positive cases in the first three months. By contrast, during the first state of emergency, stock returns were negatively correlated with changes in the number of new positive cases, but positively correlated with changes in the SVI.