Impact of Coronavirus on liquidity in financial markets

Ruhana Zareen Gofran; Andros Gregoriou; Lawrence Haar

doi:10.1016/j.intfin.2022.101561

Impact of Coronavirus on liquidity in financial markets  

Ruhana Zareen Gofran, Andros Gregoriou, Lawrence Haar

School of Business and Law

Research output: Contribution to journal › Article › peer-review

Abstract

We examine the liquidity impact of the COVID-19 Pandemic upon equity markets in the USA, UK, Brazil, China, Germany and Spain. We establish that the pandemic causes a short-term loss in liquidity, confirmed by the significant increases in bid-ask spreads. Further, analysing long-term financial stability using price impact ratios, shows that for China alone, there is an impact of COVID-19. Also, examination of spread decomposition reveals the role of information asymmetry in the widening of spreads, rather than changes in cost of trading around the news of the pandemic. This finding holds for all of the observed capital markets with the exception of China.

Original language	English
Article number	101561
Number of pages	12
Journal	Journal of International Financial Markets, Institutions & Money
Volume	78
DOIs	https://doi.org/10.1016/j.intfin.2022.101561
Publication status	Published - 18 Apr 2022

Bibliographical note

Publisher Copyright:
© 2022 Elsevier B.V.

Keywords

Amihud ratio
Bid-ask spread
COVID-19 pandemic
Liquidity

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10.1016/j.intfin.2022.101561

COVID Liquidity PUREAccepted author manuscript, 615 KBLicence: CC BY-NC-ND

Cite this

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title = "Impact of Coronavirus on liquidity in financial markets  ",

abstract = "We examine the liquidity impact of the COVID-19 Pandemic upon equity markets in the USA, UK, Brazil, China, Germany and Spain. We establish that the pandemic causes a short-term loss in liquidity, confirmed by the significant increases in bid-ask spreads. Further, analysing long-term financial stability using price impact ratios, shows that for China alone, there is an impact of COVID-19. Also, examination of spread decomposition reveals the role of information asymmetry in the widening of spreads, rather than changes in cost of trading around the news of the pandemic. This finding holds for all of the observed capital markets with the exception of China.",

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AU - Haar, Lawrence

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N2 - We examine the liquidity impact of the COVID-19 Pandemic upon equity markets in the USA, UK, Brazil, China, Germany and Spain. We establish that the pandemic causes a short-term loss in liquidity, confirmed by the significant increases in bid-ask spreads. Further, analysing long-term financial stability using price impact ratios, shows that for China alone, there is an impact of COVID-19. Also, examination of spread decomposition reveals the role of information asymmetry in the widening of spreads, rather than changes in cost of trading around the news of the pandemic. This finding holds for all of the observed capital markets with the exception of China.

AB - We examine the liquidity impact of the COVID-19 Pandemic upon equity markets in the USA, UK, Brazil, China, Germany and Spain. We establish that the pandemic causes a short-term loss in liquidity, confirmed by the significant increases in bid-ask spreads. Further, analysing long-term financial stability using price impact ratios, shows that for China alone, there is an impact of COVID-19. Also, examination of spread decomposition reveals the role of information asymmetry in the widening of spreads, rather than changes in cost of trading around the news of the pandemic. This finding holds for all of the observed capital markets with the exception of China.

KW - Amihud ratio

KW - Bid-ask spread

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KW - Liquidity

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JF - Journal of International Financial Markets, Institutions & Money

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Impact of Coronavirus on liquidity in financial markets

Abstract

Bibliographical note

Keywords

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Impact of Coronavirus on liquidity in financial markets  