COVID‐19 intensity across U.S. states and the liquidity of U.S. equity markets: The Official Publication of the Eastern Finance Association

We study the effects of COVID‐19 intensity on equity market liquidity across U.S. states. We exploit cross‐sectional variation in cases and deaths to investigate any association with the deterioration of stock liquidity of firms whose headquarters or operations are in the corresponding state(s). Our motivation stems from several underlying economic channels such as order processing costs, inventory costs, and adverse selection costs. We find strong negative relations between pandemic intensity and various intra‐day liquidity measures. Our results are more pronounced for firms operating in states with more stringent containment and health measures and within industries with greater risk exposure.

Social distancing and local bias

This study investigates the effect of social distancing on the local bias of institutional investors. Using SafeGraph's Social Distancing Metrics data and SEC's EDGAR 13F filings, we find that stay-at-home duration ratio decreases institutional investors' local holdings and firms' institutional ownership in the U.S. We also exploit the lockdown orders across various states during the COVID-19 pandemic as exogenous shocks to conduct the stacked regression estimation, which yields a similar result. Our channel analysis using abnormal return indicates that social distancing mitigates local bias by constraining the information advantage of local investors rather than alleviating their cognitive bias. © 2022 Elsevier Inc.

COVID-19 intensity across U.S. states and the liquidity of U.S. equity markets

We study the effects of COVID-19 intensity on equity market liquidity across U.S. states. We exploit cross-sectional variation in cases and deaths to investigate any association with the deterioration of stock liquidity of firms whose headquarters or operations are in the corresponding state(s). Our motivation stems from several underlying economic channels such as order processing costs, inventory costs, and adverse selection costs. We find strong negative relations between pandemic intensity and various intra-day liquidity measures. Our results are more pronounced for firms operating in states with more stringent containment and health measures and within industries with greater risk exposure.

Social distancing and local bias

This study investigates the effect of social distancing on the local bias of institutional investors. Using SafeGraph’s Social Distancing Metrics data and SEC’s EDGAR 13F filings, we find that stay-at-home duration ratio decreases institutional investors’ local holdings and firms’ institutional ownership in the U.S. We also exploit the lockdown orders across various states during the COVID-19 pandemic as exogenous shocks to conduct the stacked regression estimation, which yields a similar result. Our channel analysis using abnormal return indicates that social distancing mitigates local bias by constraining the information advantage of local investors rather than alleviating their cognitive bias.