COVID-19 pandemic and the stock market: Liquidity, price efficiency, and trading

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.

Automated summary

This paper demonstrates that the COVID-19 pandemic resulted in a decrease in liquidity and an increase in price efficiency and informed trading prior to the closure of the NYSE trading floor. The closure of the trading floor led to a reduction in liquidity, price efficiency, and informed trading on the NYSE, while its subsequent reopening resulted in an increase in these variables. The impact of the pandemic and trading floor on price efficiency can be partially explained by their influence on liquidity and informed trading. The effects on liquidity and price efficiency were completely reversed after the NYSE reopened its trading floor.