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

Ozik, Gideon; Sadka, Ronnie; Shen, Siyi

doi:10.2139/ssrn.3663970

Cited by 28 publications

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“…The COVID-19 crisis accelerated trends in financial innovation that preceded the crisis. These include fintech lending, which is the focus of the Bao and Huang article, as well as digital currencies/cryptocurrencies, retail trading (the focus of Ozik, Sadka, and Shen (2021)), digital payments, and online banking. These innovations have far-reaching consequences for the organization of the financial sector, for real economic activity, and for the design of future financial regulation.…”

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confidence: 99%

“…These innovations have far-reaching consequences for the organization of the financial sector, for real economic activity, and for the design of future financial regulation. Ozik et al (2021) focus on technological shifts in a different segment of the market, that is, retail investors, and studies their implications for liquidity provision in equity markets. Ozik et al document heightened trading of retail investors during the crisis, which mitigated the illiquidity effects of the COVID-19 crisis by roughly 40%.…”

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confidence: 99%

“…Whereas Ozik et al (2021) study the flow of capital from investors into equity markets, Cejnek, Randl, and Zechner (2021) focus on capital flows in the opposite direction, from equity markets to investors. Their article shows that dividends are not smooth during crises as firms cut their dividends following the onset of the COVID-19 crisis.…”

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The COVID-19 Crisis and the Allocation of Capital

Duchin

Harford²

2021

J. Financ. Quant. Anal.

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We summarize and synthesize the results of the papers in this symposium issue on research related to the Covid-19 Pandemic. We argue that, taken together, the papers present evidence that the pandemic resulted in a shock to capital allocation. The reasons include accelerating technological shifts that disrupted financial and real economic activities, thus affecting both the supply of capital and reshuffling the demand for capital across sectors and businesses, as well as unprecedent stimulus packages that allocated capital to individuals, firms, and local governments through a myriad of programs and program designs. We present additional evidence on the heterogeneous cross-industry impacts on profit, payout, investment, employment and productivity. This is a ``preproof'' accepted article for Journal of Financial and Quantitative Analysis. This version may be subject to change during the production process.

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The COVID-19 Crisis and the Allocation of Capital

Duchin

Harford²

2021

J. Financ. Quant. Anal.

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“…The trading app Robinhood and other online brokerages saw record trading volume and new accounts (see, for instance, https://www.wsj.com/ articles/everyones-a-day-trader-now-11595649609, accessed on 6 January 2021) resulting in greater retail stock market participation and trading activity throughout the lockdown period. Ozik, Sadka, and Shen (2021) [15] find that the number of Robinhood trading accounts was significantly larger during lockdowns than during normal periods, especially among stocks with high COVID-19-related media coverage. Pagano et al (2021) [16] also examine the role of Robinhood investors during the pandemic and their impact on market quality.…”

Section: Introductionmentioning

confidence: 99%

“…We partially base our model selection on the experience of previous literature. Other studies analyzing trading volume dynamics in equity markets during COVID-19 have mostly used OLS models (see, for example, [15][16][17][18]). Meanwhile, VAR models are commonly used in the financial literature to examine the dynamic relations among Bitcoin returns and trading activity (see, for instance, [19][20][21]).…”

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confidence: 99%

Trading Cryptocurrencies as a Pandemic Pastime: COVID-19 Lockdowns and Bitcoin Volume

2021

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This paper examines the impact of COVID-19 lockdowns on Bitcoin trading volume. Using data from Apple mobility trends and several time-series econometric models, we find that investors became active participants during the COVID-19 pandemic period and traded more bitcoins on days with low mobility associated with lockdown mandates. These results remain robust after controlling for stocks and gold returns, the VIX index, and the level of attention and sentiment toward Bitcoin, as measured by Google search frequencies and the tone of Tweets discussing Bitcoin. These results suggest that when individual investors have ample free time on their hands, they trade cryptocurrencies as a pastime and use the Bitcoin market as a form of entertainment. Moreover, our results have important implications concerning investors’ herding behavior and overconfidence leading to noise trader risks and bubbles typically accompanied by high trading volume in cryptocurrency markets.

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How online discussion board activity affects stock trading: the case of GameStop

Betzer

Harries

2022

Financ Mark Portf Manag

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In January 2021, the stock price of NASDAQ-listed GameStop Corporation surged more than twenty-fold for no discernible economic reason. Many observers attributed this broadly covered rise to retail investors, organizing themselves in Reddit’s WallStreetBets community. While Social Media-organized trading is not a new phenomenon, the magnitude of the resulting swings in the share price and surge in trading volume of GameStop is unprecedented. Using financial data, as well as an extensive dataset of Reddit posts, we provide empirical evidence for the relationship of Reddit posts and GameStop (retail) trading. While we find a significant and positive relationship between Reddit posts and various trading measures in the following 30-min window in accordance with an attention-based mechanism, our results offer no indication for the informativeness of Reddit posts and hint at a complex and probably nonlinear interdependence between Social-media and trading activity, preventing proof of a one-directional, causal effect.

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

Cited by 28 publications

References 0 publications

The COVID-19 Crisis and the Allocation of Capital

The COVID-19 Crisis and the Allocation of Capital

Trading Cryptocurrencies as a Pandemic Pastime: COVID-19 Lockdowns and Bitcoin Volume

How online discussion board activity affects stock trading: the case of GameStop

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