Brokers and Order Flow Leakage: Evidence from Fire Sales

61 Pages Posted: 29 Nov 2017

See all articles by Andrea Barbon

Andrea Barbon

University of St. Gallen

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Francesco A. Franzoni

USI Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Augustin Landier


Multiple version iconThere are 3 versions of this paper

Date Written: November 2017


Using trade-level data, we study whether brokers play a role in spreading order flow information. We focus on large portfolio liquidations, which result in temporary drops in stock prices, and identify the brokers that intermediate these trades. We show that these brokers’ best clients tend to predate on the liquidating funds: at the beginning of the fire sale, they sell their holdings in the liquidated stocks, to then cover their positions once asset prices start recovering. The predatory trades generate at least 50 basis points over ten days and cause the liquidation costs for the distressed fund to almost double. These results suggest a role of brokers in fostering predatory behavior and raise a red flag for regulators. Moreover, our findings highlight the trade-off between slow execution and potential information leakage in the decision of optimal trading speed.

Suggested Citation

Barbon, Andrea and Di Maggio, Marco and Franzoni, Francesco A. and Landier, Augustin, Brokers and Order Flow Leakage: Evidence from Fire Sales (November 2017). Harvard Business School Finance Working Paper No. 18-046, Available at SSRN: or

Andrea Barbon

University of St. Gallen ( email )

Bodanstrasse 8
St.Gallen, 9000


Marco Di Maggio (Contact Author)

Harvard Business School ( email )

Soldiers Field
Baker Library 265
Boston, MA 02163
United States

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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Francesco A. Franzoni

USI Lugano ( email )

Via G. Buffi 13
Lugano, 6904

Swiss Finance Institute


Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Augustin Landier

HEC ( email )

+33630006051 (Phone)

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