The impact of social distancing on trading activity during the COVID‐19 pandemic

I explore the impact of social distancing on trading activity during the COVID‐19 pandemic using real‐time location tracking data from Facebook users. I find that stocks categorized as “harder‐to‐value,” which are typically smaller, less transparent, less visible, and less profitable, experience decreased abnormal trading with more social distancing in their headquarters counties. In contrast, “easier‐to‐value” stocks show an increase in abnormal trading due to high social distancing in their headquarters counties. These findings indicate that greater firm‐specific information asymmetry arises from increased social distancing within the firm headquarters counties. Although “easier‐to‐value” stocks can use alternative information sources to mitigate the information asymmetry, “harder‐to‐value” stocks fail to do so and face negative impact on trading. Additional analyses using alternative information channels, market sidedness, and liquidity confirm this hypothesis.