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COVID-19 pandemic and liquidity commonality

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  • Suardi, Sandy
  • Xu, Caihong
  • Zhou, Z. Ivy

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.

Suggested Citation

  • Suardi, Sandy & Xu, Caihong & Zhou, Z. Ivy, 2022. "COVID-19 pandemic and liquidity commonality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:intfin:v:78:y:2022:i:c:s1042443122000579
    DOI: 10.1016/j.intfin.2022.101572
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    4. Bevilacqua, Mattia & Duygun, Meryem & Vioto, Davide, 2023. "The impact of COVID-19 related policy interventions on international systemic risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    COVID-19; Liquidity commonality; Transaction cost; Stock markets;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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