The impact of COVID-19 on stock market liquidity: Evidence from the Johannesburg Stock Exchange

Abstract

Liquidity is an important feature of any well- functioning financial market. The recent outbreak of COVID-19 has created economic turbulence around the world, subsequently, exacerbating the volatility of global financial markets. Therefore, the objective of this study is to examine the impact of COVID-19 on the liquidity of firms trading on the Johannesburg Stock Exchange (JSE). Using a sample period of March 5, 2020 to June 12, 2020, the findings of this study suggest that growth in confirmed COVID-19 cases dries up the liquidity of firms constituted in the JSE All Share Index. However, growth in deaths caused by COVID-19 leads to an increase in the liquidity of these firms. Further analysis reveals that the negative relationship between growth in confirmed cases and changes in liquidity holds for companies of all sizes whilst the positive relationship between growth in deaths and changes in liquidity holds only for medium and small market capitalization stocks. Overall, for companies of all sizes, growth in confirmed COVID-19 cases exhibits a greater impact on liquidity relative to growth in COVID-19 deaths.