Research Note: Capital market liquidity in the 2020 coronavirus crisis

This paper examines how UK equity markets and bond Exchange Traded Funds managed the period of stress caused by the coronavirus (Covid-19) crisis. 

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The coronavirus (Covid-19) crisis is one of the largest shocks to the global economy on record. This paper examines how UK equity markets (exchange traded cash, ETF and derivative) and bond ETFs managed this unprecedented period of stress.  

We provide descriptive statistics of liquidity measures in these markets during the stress period that began in March 2020. We find that the dramatic fall in liquidity reached 2008 crisis levels. While this has since mostly recovered, partial deterioration persisted as of February 2021.  

We also examine whether measures of market uncertainty and funding constraints explain the dramatic fall in liquidity during the crisis in equity markets. We find that uncertainty seems to be the most correlated with reductions in liquidity. 


Daniel Mittendorf, Christian Neumeier, Peter O’Neill and Khashayar Rahimi. 


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