Contagious margin calls: How COVID-19 threatened global stock market liquidity

• DOI: 10.1016/j.finmar.2021.100689
• Publication Date: 2021-10-30T20:14:35Z
• Authors: Sean Foley; Amy Kwan; Richard Philip; Bernt Arne Ødegaard
• Keywords: Margin (machine learning); Pandemic; Funding liquidity

The outbreak of the COVID-19 pandemic caused some of the largest – and fastest – market dislocations in modern history. During the outbreak, liquidity quickly evaporated in a coordinated fashion across global markets. We show that a sudden increase in margin requirements during the pandemic is correlated with the withdrawal of global liquidity providers. These effects are concentrated in securities most exposed to high-frequency market makers, consistent with the binding nature of increased capital constraints.