Contagious Margin Calls: How Covid-19 threatened global stock market liquidity
Richard Philip and
Additional contact information
Sean Foley: Macquarie University, Australia
Amy Kwan: University of Sydney, Australia
Richard Philip: University of Sydney, Australia
No 2020/1, UiS Working Papers in Economics and Finance from University of Stavanger
The Covid-19 epidemic has caused some of the largest - and fastest - market dislocations in modern history. Contemporaneous with the significant fall in equity market values is the evaporation of market liquidity. We document the evolution of transactions costs, depth and rewards to liquidity suppliers across a variety of countries affected by the virus. We show that transactions costs increase sharply in a coordinated fashion across global markets, with depth drying up almost overnight. The withdrawal of global liquidity suppliers is correlated with the increase of over 400% in margin requirements, driving a pro-cyclical downwards liquidity spiral. These affects are shown to be concentrated in securities most exposed to electronic market-makers.
Keywords: Covid-19; Margin requirements; Stock market liquidity (search for similar items in EconPapers)
JEL-codes: G01 G12 G14 G15 (search for similar items in EconPapers)
Pages: 23 pages
New Economics Papers: this item is included in nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://ba-odegaard.no/uis_wps_econ_fin/uis_wps_2020_01_odegaard.pdf Full text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hhs:stavef:2020_001
Access Statistics for this paper
More papers in UiS Working Papers in Economics and Finance from University of Stavanger University of Stavanger, NO-4036 Stavanger, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by Bernt Arne Odegaard ().