COVID-19 and investors' trading behavior: Evidence from the New Zealand equity market

This paper examines the trading behavior of retail and institutional investors during the COVID19 pandemic in New Zealand. Using transaction-level data, it compares how retail and institutional investors trade over the government announcements, lockdown, and reopening periods. Retail and institutional investors' trading intensifies around government announcements, which facilitates attenuating illiquidity during the lockdown. Nevertheless, while retail trading is substantially more prominent during the lockdown than over the control and reopening periods, institutional investors do not trade significantly more per se or on announcements during the lockdown but trade less during the reopening. Their trading also relates to contemporaneous returns, and their effects differ across certain sub-periods and on government announcements. Our findings suggest that while the announcements and emotions drive the retail investors' trading, institutions may trade more on firms' fundamentals.