Flattening the Illiquidity Curve: Retail Trading During the COVID-19 Lockdown

Journal of Financial and Quantitative Analysis, forthcoming

53 Pages Posted: 5 Aug 2020 Last revised: 17 May 2021

See all articles by Gideon Ozik

Gideon Ozik

EDHEC Business School

Ronnie Sadka

Boston College - Carroll School of Management

Siyi Shen

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics

Date Written: May 13, 2021

Abstract

This paper studies the impact of retail investors on stock liquidity during the Coronavirus pandemic lockdown in Spring 2020. Retail trading exhibits a sharp increase, especially among stocks with high COVID-19-related media coverage. Retail trading attenuated the rise in illiquidity by roughly 40%, but less so for high-media-attention stocks. Causality is addressed utilizing the staggered implementation of stay-at-home advisory across US states. The results highlight that access to financial markets facilitated by fintech innovations to trading platforms, along with ample free time, are significant determinants of retail-investor stock-market participation.

Keywords: Illiquidity curve, COVID-19, retail investors, fintech, media attention

JEL Classification: G12, G14

Suggested Citation

Ozik, Gideon and Sadka, Ronnie and Shen, Siyi, Flattening the Illiquidity Curve: Retail Trading During the COVID-19 Lockdown (May 13, 2021). Journal of Financial and Quantitative Analysis, forthcoming, Available at SSRN: https://ssrn.com/abstract=3663970 or http://dx.doi.org/10.2139/ssrn.3663970

Gideon Ozik

EDHEC Business School ( email )

Nice
France

Ronnie Sadka (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Siyi Shen

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

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