Liquidity Under Stress: Comparative Evidence from the Global Financial Crisis and the COVID-19 Pandemic in India

The study examines the impact of the 2008 global financial crisis (GFC) and the COVID-19 pandemic on the liquidity dynamics at the National Stock Exchange of India (NSE). The analysis uses data on firms listed on the NSE over the period 2005–2022. Multiple low-frequency liquidity measures are employed to capture different liquidity dimensions. The results of the fixed-effects panel regression reveal that liquidity deteriorated during both crises, but the severity and persistence of the decline varied. Liquidity had deteriorated across all dimensions during COVID-19, similar to that of the GFC, but the volume dimension showed a paradoxical improvement. Compared to the GFC, the liquidity decline during COVID-19 was much less severe and transitory in nature. Sectoral analysis reveals that no sector was disproportionately affected during either crisis. The findings provide evidence that the nature of the crisis and the policy response play a crucial role in determining liquidity dynamics during periods of market stress.