COVID-19 pandemic and liquidity commonality

Sandy Suardi, Caihong Xu and Z. Ivy Zhou

Journal of International Financial Markets, Institutions and Money, 2022, vol. 78, issue C

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.

Keywords: COVID-19; Liquidity commonality; Transaction cost; Stock markets (search for similar items in EconPapers)
JEL-codes: G01 G14 G15 G18 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:78:y:2022:i:c:s1042443122000579

DOI: 10.1016/j.intfin.2022.101572

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