The Information in Asset Fire Sales

Management Science, Forthcoming

50 Pages Posted: 20 Feb 2016 Last revised: 31 Mar 2022

See all articles by Sheng Huang

Sheng Huang

China Europe International Business School (CEIBS)

Matthew C. Ringgenberg

University of Utah - Department of Finance

Zhe Zhang

Singapore Management University - Lee Kong Chian School of Business

Date Written: March 30, 2022

Abstract

Asset prices remain depressed for years following mutual fund fire sales, but little is known about the causes of these price drops. We show that asymmetric information generates price pressure during fire sales. We separate trades into expected trades, which assume fund managers scale down their portfolio, and discretionary trades. We find that discretionary trades contain fundamental information, while expected trades do not. Moreover, other traders cannot distinguish between discretionary and expected trades. Our findings help explain the magnitude and persistence of fire sale discounts: fund managers choose which assets to sell and information asymmetries make it difficult for arbitrageurs to disentangle price pressure from fundamental information.

Keywords: adverse selection, asymmetric information, fire sales, information economics, institutional investors, slow moving capital

JEL Classification: E22, G01, G12, G14

Suggested Citation

Huang, Sheng and Ringgenberg, Matthew C. and Zhang, Zhe, The Information in Asset Fire Sales (March 30, 2022). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2735172 or http://dx.doi.org/10.2139/ssrn.2735172

Sheng Huang

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Matthew C. Ringgenberg (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Zhe Zhang

Singapore Management University - Lee Kong Chian School of Business ( email )

Lee Kong Chian School of Business
50 Stamford Road
Singapore, 178899
Singapore

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