COVID-19 Pandemic and Liquidity Commonality

38 Pages Posted: 31 Mar 2022 Last revised: 18 May 2022

See all articles by Sandy Suardi

Sandy Suardi

University of Wollongong

Caihong Xu

Stockholm University - Stockholm Business School

Z. Ivy Zhou

University of Wollongong - School of Accounting, Economics & Finance

Date Written: February 15, 2022

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.

Keywords: COVID-19, liquidity commonality, transaction cost, stock markets

JEL Classification: G01, G14, G15, G18

Suggested Citation

Suardi, Sandy and Xu, Caihong and Zhou, Z. Ivy, COVID-19 Pandemic and Liquidity Commonality (February 15, 2022). Available at SSRN: https://ssrn.com/abstract=4070641 or http://dx.doi.org/10.2139/ssrn.4070641

Sandy Suardi (Contact Author)

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Caihong Xu

Stockholm University - Stockholm Business School ( email )

Roslagsvägen 1010
Stockholm, SE-106 91
Sweden

Z. Ivy Zhou

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

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