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

Published online by Cambridge University Press:  05 July 2021

Gideon Ozik ,
Ronnie Sadka Open the ORCID record for Ronnie Sadka [Opens in a new window]  and
Siyi Shen
Gideon Ozik
Affiliation:
EDHEC Business Schoolgideon.ozik@edhec.com
Ronnie Sadka*
Affiliation:
Boston College Carroll School of Management
Siyi Shen
Affiliation:
Chinese University of Hong Kong, Shenzhen School of Management and Economics shensiyi@cuhk.edu.cn
*
sadka@bc.edu (corresponding author)
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Abstract

This article studies the impact of retail investors on stock liquidity during the COVID-19 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 using the staggered implementation of the stay-at-home advisory across U.S. states. The results highlight that ample free time and access to financial markets facilitated by fintech innovations to trading platforms are significant determinants of retail-investor stock market participation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 7: JFQA Symposium on the Consequences of the COVID-19 Pandemic for Firms and Capital Markets , November 2021 , pp. 2356 - 2388
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

Ozik and Sadka are affiliated with MKT MediaStats, LLC. For helpful comments and suggestions, we thank Philip Bond, Ran Duchin (editor), Slava Fos, Thierry Foucault, Jarrad Harford (editor), Zhiguo He, David Hirshleifer, Mark Kamstra, Stefan Nagel, Lin Peng, Alessandro Rebucci, Alexi Savov, Amit Seru, Kelly Shue, Phil Strahan, Dick Syron, Pierre-Olivier Weill, Wei Xiong, and Liyan Yang, as well as seminar and conference participants at Hebrew University, Stockholm Business School, Tel Aviv University, the University of South Carolina, the U.S. Securities and Exchange Commission, the 2020 Journal of Finance/Fama--Miller Center Conference on the Financial Consequences of the COVID-19 Pandemic, the 2021 Australasian Finance and Banking Conference, State Street Associates, the Goldman Sachs QES Academic Research Club, the 2021 Midwest Finance Association (MFA) Annual Conference, and the 2021 Journal of Financial and Quantitative Analysis COVID Symposium. The views expressed are solely those of the authors.

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