In this paper, we study the impact of the ongoing COVID-19 crisis on US equity market liquidity. We compare spread costs, market impact costs, intraday market conditions, and market resilience during the crisis and under normal market conditions. We hope this will help institutional investors and other market participants navigate these challenging conditions more easily. “Liquidity” refers to the difficulty of buying or selling an asset, but investors often confuse liquidity with “volume” (a decent proxy) but there are other factors at play such as volatility, leverage available to liquidity providers, and market resiliency. For smaller trades the cost of liquidity is the bid-offer spread, which an investor can pay to execute up to the shares available at the NBBO (referred to as “NBBO depth” here). Since both spreads and depth are affected in a crisis period, we study the normalized bid-offer spread, comparing the estimated spread for fixed depth before and after the COVID-19 crisis began. For orders larger than the NBBO depth, institutional investors realize market impact costs in addition to the bid-offer spread. We study the market impact costs for varying order sizes and participation rates. We also report on changing intraday liquidity dynamics to help investors optimize execution throughout the day.

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