Research On The Impact Of External Shocks On Stock Market Liquidit

As a major public health emergency,the COVID-19 pandemic that broke out at the end of 2019 not only affected people’s daily life,but also had a serious negative impact on China’s economy.However,most of the current research on the epidemic focuses on the price effect of the COVID-19 pandemic on the stock market,and there are few studies conducted on the impact of the epidemic on the stock market from the perspective of market microstructure.As the core element of market microstructure,liquidity is also the cornerstone of the existence and development of the stock market.Sufficient liquidity can ensure the smooth operation of transactions.It can be seen that studying the liquidity changes of the stock market during the COVID-19 pandemic will help the regulatory authorities to better monitor the market status and ensure that the market can still operate healthily and stably under the impact of emergencies.Based on the data of Chinese A-share companies from January 20,2020 to June 30,2020,this study examines the changing trend of stock liquidity during the COVID-19 pandemic,the role of investor behavior in the impact,and relevant channels for businesses to avoid liquidity loss during the epidemic,research reveals:First of all,the COVID-19 pandemic outbreak has had a huge negative impact on the liquidity of the stock market in China and there are variations according on the time period.The outbreak of foreign epidemics continued the vicious trend of liquidity,but with the announcement of a series of government prevention and control policies,the overall liquidity of the stock market began to recovery at the end of May.Second,the abnormal liquidity during the epidemic can be explained by behavioral finance.When investors are highly concerned about the epidemic,investors are attracted by the information about the epidemic,and have a cognitive bias towards the stock price,which leads to an increase in the abnormal bid-ask spread of the stock and a decrease in stock liquidity;on the contrary,when the investor’s epidemic sentiment rises,that is,investors are optimistic about the epidemic,investors will increase their willingness to hold shares,trade more frequently,the bid-ask spread of stocks will be smaller,and the stock liquidity will be better.Order imbalance plays a partial mediating role in the impact of both on liquidity.Thirdly,through the analysis of heterogeneity,it can be found that the impact of investors’ epidemic concern(sentiment)on stock liquidity is heterogeneous.The SIZE heterogeneity test shows that due to their hard soft power,the liquidity of large-scale companies is less disturbed by irrational factors such as investors’ epidemic concerns(emotions).The industry heterogeneity test shows that investors’ epidemic concern(sentiment)has a greater impact on industries closely related to the epidemic,such as manufacturing and information.Finally,companies that hold more Cash reserves,fulfill social responsibilities,or have made donations during the epidemic have smaller liquidity losses during the epidemic.At the same time,investors will not "turn a deaf ear" to the company’s information signals during the epidemic.Companies that release positive information signals can alleviate investors’ concerns and have a positive impact on liquidity.On the contrary,negative information signals will exacerbate investor panic and further deteriorate liquidity.The study’s findings will enable the government and businesses make the necessary preparations for any potential future external shock risk and ensure the steady growth of the financial market.