COVID-19 and market structure dynamics

Justin Cox; Donovan Woods

doi:10.1016/j.jbankfin.2021.106362

COVID-19 and market structure dynamics

J Bank Financ. 2023 Feb:147:106362. doi: 10.1016/j.jbankfin.2021.106362. Epub 2021 Nov 19.

Authors

Justin Cox¹, Donovan Woods²

Affiliations

¹ Appalachian State University, Boone, NC 38655, United States.
² University of North Carolina Wilmington, Wilmington, NC 28403, United States.

Abstract

We examine the impact of COVID-19 on market structure in the U.S. Specifically, we analyze the impact of both the COVID-19-induced market uncertainty period as well as the suspension of the NYSE floor on trading dynamics such as market fragmentation, algorithmic trading, and hidden liquidity in the market. During both the heightened market uncertainty and NYSE floor suspension periods, we find a significant increase in hidden liquidity yet significant decreases in both algorithmic trading and market fragmentation. However, despite withdrawing from the market during this period, remaining algorithmic traders appear to improve market quality. Our results indicate that COVID-19 had a significant impact on order routing, pre-trade transparency, and automated trading.

Keywords: Algorithmic trading; COVID-19 pandemic; Hidden liquidity; NYSE floor close.