The Effects of Uncertainty on Market Liquidity: Evidence from Hurricane Sandy

45 Pages Posted: 16 May 2018

See all articles by Dominik Rehse

Dominik Rehse

ZEW – Leibniz Centre for European Economic Research

Ryan Riordan

Smith School of Business

Nico Rottke

EBS Universität für Wirtschaft und Recht - EBS Business School

Joachim Zietz

EBS University, EBS Business School

Multiple version iconThere are 2 versions of this paper

Date Written: 2018

Abstract

We test the effects of uncertainty on market liquidity using Hurricane Sandy as a natural experiment. Given the unprecedented strength, scale and nature of the storm, the potential damages of a landfall near the Greater New York area were unpredictable and therefore uncertain. Using a difference-in-differences setting, we compare the market reactions of Real Estate Investment Trusts (REITs) with and without properties in the widely-published evacuation zone of New York City prior to landfall. We find relatively less trading and wider bid-ask spreads in affected REITs. The results confirm theory on the detrimental effects of uncertainty on market functioning.

Keywords: uncertainty, liquidity, financial crisis, natural experiment

JEL Classification: G12, G14

Suggested Citation

Rehse, Dominik and Riordan, Ryan and Rottke, Nico and Zietz, Joachim, The Effects of Uncertainty on Market Liquidity: Evidence from Hurricane Sandy (2018). ZEW - Centre for European Economic Research Discussion Paper No. 18-024. Available at SSRN: https://ssrn.com/abstract=3178700 or http://dx.doi.org/10.2139/ssrn.3178700

Dominik Rehse (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Ryan Riordan

Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Nico Rottke

EBS Universität für Wirtschaft und Recht - EBS Business School ( email )

Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany

Joachim Zietz

EBS University, EBS Business School ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

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