The impact of COVID-19 on stock market liquidity: Fresh evidence on listed Chinese firms

Abstract

This paper examines the impact of the COVID-19 pandemic on the liquidity of Chinese stock market, while accounting for heterogeneity and transmission channels. The analysis incorporates important innovations relative to previous literature. It incorporates both global and national COVID-19 proxies to measure the severity of the pandemic, providing fresh insights into its disruptive effect on the Chinese stock market. While all businesses are expected to experience significant economic losses due to the pandemic, it is important to recognise the effects can vary across firms. Our study as indicates that COVID-19 shocks can have a negative impact on liquidity by influencing three critical factors: earnings dispersion, equity risk premia, and trade credit restrictions. These findings hold substantial importance for both governments and regulators, who should take actions to stimulate stock market liquidity and provide support to affected firms.

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DOI

https://doi.org/10.1016/j.irfa.2023.102847

Repository URI

https://researchportal.hw.ac.uk/en/publications/4ae38c16-27f2-4f77-b1b3-7880901a410e