Don’t follow the herd: How governments’ tough Covid restrictions can help limit economic damage

The UK Government's hesitancy to bring in tougher Covid restrictions exacerbated investor herding, market volatility and greater harm to its economy compared to countries with swifter and more decisive pandemic responses, new research indicates. Countries with more stringent government responses to the coronavirus crisis benefitted from lower levels of investor herding, newly published research from the University of Sussex Business School , Southampton Business School and University of Brescia (Italy) reveals. Stringent government restrictions mitigated investor herding behaviour by reducing multidimensional uncertainty, the authors found. The research also indicates that strict restrictions on individual freedoms and economic operations do not have a wholly negative impact upon a country's economy. Study co-author Dr Panagiotis Tzouvanas said it was likely that the delayed response from the UK government to impose strict measures increased herding and volatility while its reluctance may have also alarmed investors and encouraged them to move to other markets. Dr Tzouvanas, Lecturer in Finance at the University of Sussex Business School, said: "While other European countries have almost recovered from the Covid shock, the UK's stock market is still lagging behind. Of course, the role Brexit has played cannot be discounted as a factor but it is likely its' impact must have been priced even before the pandemic.