Recovery from Fast Crashes: Role of Mutual Funds
66 Pages Posted: 27 Aug 2018 Last revised: 17 Apr 2020
Date Written: April 17, 2020
We study the role mutual funds play in the recovery from fast intraday crashes based on data from the National Stock Exchange of India for a single large stock. During normal times, trading activity and liquidity provision by mutual funds is negligible compared to other traders at around 4% of overall activity. Nevertheless, for the two intraday market- wide crashes in our sample, price recovery took place only after mutual funds moved in. Market stability may require the presence of well-capitalized standby liquidity providers for recovery from crashes.
Keywords: Liquidity Provision; Market Fragility; Flash Crash; Slow-Moving Capital
JEL Classification: G12, G14
Suggested Citation: Suggested Citation