COVID-19 pandemic and liquidity commonality
Publication Name
Journal of International Financial Markets, Institutions and Money
Abstract
This paper shows how the US, UK, Germany and China are financially connected through their stock market liquidity in the COVID-19 pandemic. Using high frequency data on transaction costs, we identify a decrease in stock market liquidity and an increase in liquidity commonality amongst these countries after the World Health Organisation (WHO) declared the global pandemic. Furthermore, there is increased transmission of liquidity shocks from the country with higher COVID new cases and COVID-related death cases, indicating that markets are more connected with increased outbreak severity. Our results suggest that COVID-19 intensifies liquidity risk and worsens the vulnerability of individual stock market's liquidity to aggregate liquidity shocks in financial markets.
Open Access Status
This publication may be available as open access
Volume
78
Article Number
101572
Funding Sponsor
Jan Wallanders och Tom Hedelius Stiftelse samt Tore Browaldhs Stiftelse