COVID-19 Pandemic and the Stock Market: Liquidity, Price Efficiency, and Trading

Abstract

This paper shows that the COVID-19 pandemic is associated with a decrease in liquidity and increases in price efficiency and informed trading before the NYSE closed its trading floor. The closure of the trading floor led to reductions in liquidity, price efficiency, and informed trading on the NYSE, and its subsequent reopening led to increases in these variables. The effects of the pandemic and the trading floor on price efficiency can be explained, at least in part, by their impacts on liquidity and informed trading. The effects on liquidity and price efficiency are fully reversed after the NYSE reopened its trading floor.

Keywords: COVID-19, Liquidity, Trading floor, Informed trading, Price efficiency

JEL Classification: G10, G14