Fire Sales and Information Advantage: When Informed Investor Helps

50 Pages Posted: 13 Apr 2015

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Lei Zhang

Antai College of Economics and Management, Shanghai Jiao Tong University

Date Written: April 2015

Abstract

We study the relation between information and fire sales during a crisis. We argue that the reinforcing effect of funding liquidity on market liquidity is weaker when investors have more information about the assets facing sudden price drops (Brunnermeier and Pedersen, 2009). We focus on the affiliation of international asset managers with banking conglomerates. We document that bank affiliation provides an informational advantage. We show that (informed) bank-affiliated foreign ownership before the crisis predicts higher stock liquidity, lower extreme negative return realizations, lower short-selling demand, lower comovement (R2) with the market and higher price informativeness during the crisis.

Keywords: bank-affiliation, fire sales, global asset managers, international crisis, international liquidity., transmission

JEL Classification: G10, G15, G21

Suggested Citation

Massa, Massimo and Zhang, Lei, Fire Sales and Information Advantage: When Informed Investor Helps (April 2015). CEPR Discussion Paper No. DP10536. Available at SSRN: https://ssrn.com/abstract=2593819

Massimo Massa (Contact Author)

INSEAD - Finance ( email )

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Lei Zhang

Antai College of Economics and Management, Shanghai Jiao Tong University ( email )

HOME PAGE: http://sites.google.com/site/zlei89/

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