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Impact of Coronavirus on liquidity in financial markets

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  • Gofran, Ruhana Zareen
  • Gregoriou, Andros
  • Haar, Lawrence

Abstract

We examine the liquidity impact of the COVID-19 Pandemic upon equity markets in the USA, UK, Brazil, China, Germany and Spain. We establish that the pandemic causes a short-term loss in liquidity, confirmed by the significant increases in bid-ask spreads. Further, analysing long-term financial stability using price impact ratios, shows that for China alone, there is an impact of COVID-19. Also, examination of spread decomposition reveals the role of information asymmetry in the widening of spreads, rather than changes in cost of trading around the news of the pandemic. This finding holds for all of the observed capital markets with the exception of China.

Suggested Citation

  • Gofran, Ruhana Zareen & Gregoriou, Andros & Haar, Lawrence, 2022. "Impact of Coronavirus on liquidity in financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:intfin:v:78:y:2022:i:c:s104244312200049x
    DOI: 10.1016/j.intfin.2022.101561
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    2. Samuel Tabot Enow, 2023. "Stock Market Liquidity during Periods of Distress and its Implications: Evidence from International Financial Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 13(1), pages 1-6, January.

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