COVID-19 pandemic and the stock market: Liquidity, price efficiency, and trading

This paper shows that the COVID-19 pandemic is associated with a decrease in liquidity and increases in price efficiency and informed trading before the NYSE closed its trading floor. The closure of the trading floor led to reductions in liquidity, price efficiency, and informed trading on the NYSE,...

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Bibliographic Details
Published in:Journal of financial markets (Amsterdam, Netherlands) Netherlands), 2023-06, Vol.64, p.100803, Article 100803
Main Authors: Chung, Kee H., Chuwonganant, Chairat
Format: Article
Language:English
Subjects:
COVID-19
Informed trading
Liquidity
Price efficiency
Trading floor
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Summary:This paper shows that the COVID-19 pandemic is associated with a decrease in liquidity and increases in price efficiency and informed trading before the NYSE closed its trading floor. The closure of the trading floor led to reductions in liquidity, price efficiency, and informed trading on the NYSE, and its subsequent reopening led to increases in these variables. The effects of the pandemic and the trading floor on price efficiency can be explained, at least in part, by their impacts on liquidity and informed trading. The effects on liquidity and price efficiency are fully reversed after the NYSE reopened its trading floor. •The COVID-19 pandemic is associated with a decrease in liquidity and increases in price efficiency and informed trading.•The closure of the trading floor led to reductions in liquidity, price efficiency, and informed trading, and its reopening led to increases in these variables.•The effects of the pandemic and the trading floor on price efficiency can be explained by their impacts on liquidity and informed trading.•The effects on liquidity and price efficiency are fully reversed after the NYSE reopened its trading floor.
ISSN:1386-4181
1878-576X
1386-4181
DOI:10.1016/j.finmar.2023.100803