Learning from Noise? Price and Liquidity Spillovers Around Mutual Fund Fire Sales

77 Pages Posted: 4 Jun 2018

Date Written: April 12, 2018

Abstract

We study the extent of cross-asset learning in financial markets by examining spillover effects around mutual fund fire sales. We find that the well-documented impact-reversal pattern for the returns of fire sale stocks (e.g., Coval and Stafford, 2007) spills over onto the stock returns of economic peers with a magnitude that is around one fifth of the original effect. These spillovers extend to liquidity and are not explained by common funding shocks or the hedging activity of liquidity providers. We conclude that they represent information spillovers due to learning from prices, thus identifying cross-asset learning as an important driver for the commonality in returns and liquidity.

Keywords: Learning from Prices, Fire Sales, Liquidity

JEL Classification: G10, G11, G14

Suggested Citation

Honkanen, Pekka and Schmidt, Daniel, Learning from Noise? Price and Liquidity Spillovers Around Mutual Fund Fire Sales (April 12, 2018). Paris December 2018 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=3189717 or http://dx.doi.org/10.2139/ssrn.3189717

Pekka Honkanen

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex
France

Daniel Schmidt (Contact Author)

HEC Paris - Finance Department ( email )

France
0652678597 (Phone)

HOME PAGE: http://daniel-schmidt.eu

Register to save articles to
your library

Register

Paper statistics

Downloads
34
Abstract Views
196
PlumX Metrics