Do Hedge Fund Fire Sales Disrupt the Stock Market?

44 Pages Posted: 2 Jul 2013 Last revised: 21 Dec 2013

See all articles by Nicole M. Boyson

Nicole M. Boyson

Northeastern University - D’Amore-McKim School of Business

Jean Helwege

UC Riverside

Jan Jindra

U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis

Date Written: November 25, 2013

Abstract

Using a comprehensive dataset of hedge fund 13F filings, we analyze hedge fund trading from 1998-2010 to determine if investor redemptions cause fire sales and stock market disruptions. We find evidence of hedge fund fire sales in the two quarters with the worst stock market performance. During these quarters, fire sales are concentrated among low liquidity stocks and typically involve hedge funds with a preference for holding low liquidity stocks. Fire sales comprise a relatively small proportion of hedge fund portfolios, reducing performance for these funds but having a negligible impact on overall stock market performance.

Keywords: Liquidity shocks, fire sales, financial crisis, hedge funds

JEL Classification: G21, G24, G28, G32, G33, E44, E58, E61

Suggested Citation

Boyson, Nicole M. and Helwege, Jean and Jindra, Jan, Do Hedge Fund Fire Sales Disrupt the Stock Market? (November 25, 2013). Available at SSRN: https://ssrn.com/abstract=2288095 or http://dx.doi.org/10.2139/ssrn.2288095

Nicole M. Boyson (Contact Author)

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
617-373-4775 (Phone)

Jean Helwege

UC Riverside ( email )

900 University Ave.
Anderson Hall
Riverside, CA 92521
United States
9518274284 (Phone)

Jan Jindra

U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis ( email )

44 Montgomery Street
San Francisco, CA 94104
United States

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