The Relationship Between Fear Sentiment and Stock Liquidity During the COVID-19 Pandemic

This study investigates the effect of investor fear on the liquidity of Taiwan's stock market during the COVID-19 pandemic. Key findings show that investor fear, particularly as measured by global sentiment indicators, had a significant negative impact on stock market liquidity during this period. The study utilizes a global sentiment indicator based on COVID-19-related data to gauge investor sentiment. The Amihud illiquidity measure and turnover rate are employed as proxies for stock market liquidity, allowing the study to quantify changes in market conditions. Empirical results demonstrate that global sentiment indicators, which reflect broader investor fear, had a more significant impact on Taiwan's stock market liquidity than local sentiment indicators, emphasizing the global interconnectedness of financial markets during crises like the pandemic. This finding suggests that global factors can overshadow local dynamics in shaping market liquidity during periods of heightened uncertainty.