Stock price reactions to reopening announcements after China abolished its zero-COVID policy

The COVID-19 pandemic and lockdowns produced large shocks to public health and economic activity, disrupting production, distribution, supply chains, and altering consumer behavior and investor psychology. Global stock markets experienced extreme volatility and sharp declines. As vaccines rolled out and countries reopened, the causal impact of reopening announcements—especially in a post-pandemic context—remained underexplored. China’s prolonged Zero-COVID policy (nearly three years) imposed substantial social and economic costs and weighed on stock markets. In late 2022, the Chinese government unexpectedly relaxed measures through a series of announcements culminating in full reopening. This setting enables causal assessment of reopening-related information on stock prices. Research question: How and to what extent do reopening announcements in late 2022 causally affect Chinese firms’ stock prices? Hypotheses: (1) Reopening announcements generate a positive stock market impact in general; (2) impacts differ across announcements depending on relaxation intensity and public interpretation; (3) unlike lockdowns that sharply depress prices, reopening may not yield large short-run boosts. The study’s purpose is to provide causal evidence using RD and DID designs, informing policymakers and advancing literature on market reactions to policy-driven reopenings.

Prior work documents large adverse stock market effects from COVID-19 and related restrictions across regions (e.g., Baker et al. 2020; Griffith et al. 2020; Li et al. 2021; Hu and Qiu 2020; Wu et al. 2021) and highlights roles for sentiment, uncertainty, and macroeconomic channels. Evidence on reopening during the pandemic is more limited and often non-causal, focusing on contemporaneous reactions to partial measures (e.g., Xie et al. 2022; Liu et al. 2022). Existing studies typically assess reactions amidst ongoing outbreaks, not post-pandemic, and seldom isolate causal effects of reopening announcements. Given China’s unusually stringent and prolonged Zero-COVID policy, the country’s sudden policy pivot in late 2022 provides a unique natural experiment to identify the causal impact of reopening information on stock prices, building on efficient market hypothesis insights (Fama 1965).

Design: Two-stage causal strategy. (1) Short-run effects via regression discontinuity (RD) around policy announcement dates; (2) medium-term relative effects via difference-in-differences (DID) in Hong Kong, contrasting Mainland China firms with non-Mainland firms. Policy events: four dates—Nov 11, 2022 (20 measures), Dec 7, 2022 (10 measures), Dec 26, 2022 (reclassification to Class B and end of quarantine—full reopening announced), Jan 8, 2023 (implementation of new policy). RD specification: ln(average daily stock price) regressed on an indicator for post-announcement, polynomial functions of running time (days normalized to 0 on announcement), interactions, and firm/month/weekday fixed effects; standard errors clustered at firm level; bandwidths of 5 and 10 trading days around each event, following guidance on polynomial terms in RD. Identification assumes announcement timing is the sole source of discontinuity near the cutoff. DID specification (Hong Kong market): ln(average daily stock price) on indicators for after Dec 26, treatment (firm registered in Mainland China), and their interaction, with firm and date fixed effects. Windows consider up to 40 trading days post-announcement to capture medium-term responses. Data: Wind Economic Database. Period: Nov 1, 2022 to Feb 28, 2023. Mainland sample: 4,976 listed firms (average daily price, date, name, address, industry code). Hong Kong sample: 2,557 firms, of which 1,087 (42.51%) are Mainland-based. Estimation includes firm, month/weekday (RD) and firm/date (DID) fixed effects.

• RD (Mainland China, ln price): • Nov 11, 2022 (20 measures): after coefficient ≈ −3.94% (5-day window), −2.61% (10-day window), indicating a negative reaction. • Dec 7, 2022 (10 measures): ≈ −0.80% (5-day) and −2.53% (10-day), also negative. • Dec 26, 2022 (full reopening announcement): ≈ +1.39% (5-day) and +2.53% (10-day), indicating a positive jump; consistent with descriptive evidence that this announcement had the strongest favorable impact. • Jan 8, 2023 (implementation): ≈ −0.54% (5-day) and −0.55% (10-day), essentially negligible. - DID (Hong Kong market; Mainland-registered firms vs others, relative ln price change after Dec 26): • 10 days after: +1.16% (p < 0.1). • 20 days after: +1.78% (p < 0.05). • 30 days after: +1.57% (p < 0.05). • 40 days after: +1.60% (p < 0.05). - Overall: Immediate 1.4% positive effect on Dec 26 announcement within Mainland market; medium-term relative gain around 1.6% for Mainland firms on the Hong Kong market within two months post-announcement. Other relaxation announcements had minimal or negative effects.

Findings address the research question by causally linking reopening announcements to stock price responses. Not all reopenings are equal: incremental relaxations (Nov 11 and Dec 7) coincided with negative or muted reactions, possibly reflecting uncertainty, execution risks, or rising infections. In contrast, the Dec 26 full reopening announcement resolved uncertainty about future lockdowns, generating an immediate positive discontinuity in Mainland prices and sustained relative gains for Mainland firms in Hong Kong over the subsequent weeks. The negligible effect at implementation (Jan 8) suggests markets had already priced in the policy when announced. Together, RD and DID results support hypotheses that reopening announcements can have positive effects (H1), that impacts vary with policy content and interpretation (H2), and that short-run boosts are moderate compared with the large declines triggered by lockdowns (H3). These results underscore the importance of policy clarity and timing in shaping market expectations and the gradual nature of post-pandemic recovery.

This study provides the first causal evidence on post-pandemic reopening announcements’ effects on Chinese firms’ stock prices. Using RD, we find the Dec 26, 2022 full reopening announcement led to an immediate positive jump in Mainland stock prices, whereas earlier partial relaxations had negative or negligible effects. Using DID in Hong Kong, we document a roughly 1.6% relative increase for Mainland firms within two months post-announcement. Contributions include: establishing causal links between reopening communications and equity prices in a post-pandemic setting; demonstrating heterogeneous market responses across announcements; and highlighting that recovery of market confidence is gradual. Future research should investigate heterogeneity by firm characteristics, channels such as sentiment and industry exposure, and broader real-economy outcomes (productivity, labor, supply chains) to map the full economic impact of reopening policies.

• Focus on stock prices only: underlying drivers (sentiment, macro indicators, industry shocks) are not decomposed. - No firm-level heterogeneity analysis: potential differences by size, sector, financial health are not explored. - Operational dimensions (productivity, hiring, supply chains) are not examined. - Data sharing constraints limit replication; reliance on vendor data (Wind) within a defined window (Nov 1, 2022–Feb 28, 2023). - RD design captures local effects near cutoffs and assumes no confounding shocks; broader generalization requires caution. - Potential contemporaneous factors (e.g., evolving infection waves, news flow) may still influence interpretation despite fixed effects and design choices.