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COVID-19 and market structure dynamics

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  • Cox, Justin
  • Woods, Donovan

Abstract

We examine the impact of COVID-19 on market structure in the U.S. Specifically, we analyze the impact of both the COVID-19-induced market uncertainty period as well as the suspension of the NYSE floor on trading dynamics such as market fragmentation, algorithmic trading, and hidden liquidity in the market. During both the heightened market uncertainty and NYSE floor suspension periods, we find a significant increase in hidden liquidity yet significant decreases in both algorithmic trading and market fragmentation. However, despite withdrawing from the market during this period, remaining algorithmic traders appear to improve market quality. Our results indicate that COVID-19 had a significant impact on order routing, pre-trade transparency, and automated trading.

Suggested Citation

  • Cox, Justin & Woods, Donovan, 2023. "COVID-19 and market structure dynamics," Journal of Banking & Finance, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:jbfina:v:147:y:2023:i:c:s0378426621003137
    DOI: 10.1016/j.jbankfin.2021.106362
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    References listed on IDEAS

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    More about this item

    Keywords

    COVID-19 pandemic; NYSE floor close; Algorithmic trading; Hidden liquidity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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