Abstract: After the outbreak of COVID-19, there was a heated debate among scholars on the health effects and economic and social effects of the epidemic prevention and control measures taken in China. Based on the stock trading data from January 13 to April 3, 2020, this paper uses the “difference-in-difference” method to investigate the impact of lockdown on the stock price volatility of listed companies. The results show that the stock volatility of listed companies in Hubei province decreased by 10.8% after the implementation of lockdown. The mechanism analysis shows that macro-economic situation and investors’ sentiment mediate the effect of Hubei lockdown on the stock price volatility. On the one hand, lockdown reduces economic growth, so it increases the stock volatility. On the other hand, lockdown eases the spread of the epidemic, and reduces investors’ negative sentiment, so it helps reduce stock price volatility. On this basis, this paper analyzes the heterogeneity from different development stages of COVID-19, the nature of listed companies and the characteristics of their industries, and finds that the impact of lockdown on stock volatility is uncertain. This paper provides a more objective and fair evaluation of the epidemic prevention and control measures represented by lockdown in China, and provides theoretical support and quantitative evidence for financial risk mitigation and financial market stability in the context of deepening economic uncertainty and diversified challenges.

Key words: COVID-19, lockdown, stock volatility, investor sentiment, difference-in-difference