Investors' Horizons and the Amplification of Market Shocks

70 Pages Posted: 21 Apr 2012 Last revised: 30 Oct 2018

See all articles by Cristina Cella

Cristina Cella

Sverige Riksbank; Stockholm School of Economics; Swedish House of Finance; Centre for Studies in Economics and Finance (CSEF); CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 12, 2013

Abstract

This paper shows that during episodes of market turmoil 13F institutional investors with short trading horizons sell their stockholdings to a larger extent than 13F institutional investors with longer trading horizons. This creates price pressure for stocks mostly held by short horizon investors, which, as a consequence, experience larger price drops, and subsequent reversals, than stocks mostly held by long horizon investors. These findings, obtained after controlling for the withdrawals experienced by the investors, are not driven by other institutional investors’ and firms’ characteristics. Overall, the evidence indicates that investors with short horizons amplify the effects of market-wide negative shocks by demanding liquidity at times when other potential buyers’ capital is scarce.

Keywords: fire sales, institutional investors, investor horizon, market crashes, financial crisis

JEL Classification: G11, G12, G14, G18, G22

Suggested Citation

Cella, Cristina and Ellul, Andrew and Giannetti, Mariassunta, Investors' Horizons and the Amplification of Market Shocks (February 12, 2013). Review of Financial Studies, Forthcoming, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 298/2010, Available at SSRN: https://ssrn.com/abstract=1656723 or http://dx.doi.org/10.2139/ssrn.1656723

Cristina Cella

Sverige Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Stockholm School of Economics ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Centre for Studies in Economics and Finance (CSEF) ( email )

84084 Fisciano, Salerno
Italy

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Andrew Ellul (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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