Catastrophic Risk and Institutional Investors: Evidence from Institutional Trading around 9/11

43 Pages Posted: 11 Oct 2018 Last revised: 27 Nov 2018

See all articles by Yangyang Chen

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

Danlei Bonnie Yu

Hong Kong Polytechnic University, School of Accounting and Finance, Students

Jingran Zhao

Hong Kong Polytechnic University

Date Written: November 27, 2018

Abstract

Using a large sample of transaction-level institutional trading data, we investigate the role of institutional investors around the 9/11 terrorist attacks, a sudden exogenous catastrophic shock to financial markets. We find that institutional investors remain net buyers amid large market-wide crisis in the aftermath of 9/11. Furthermore, stocks that are highly bought by institutions earn higher abnormal future returns than stocks that are highly sold. We also examine trading patterns across different types of institutional investors and various industry sectors. Our results suggest that institutional investors act as liquidity providers rather than engaging in panic selling during market crises caused by catastrophic events, and their liquidity provision trading is rational and profitable. Overall, these findings support the market stabilization role played by institutional investors who lend a “steady hand” during high-stress periods in financial markets.

Keywords: Catastrophic Risk, Market Crisis and Stability, Institutional Investor, Trading

JEL Classification: G01, G12, G23

Suggested Citation

Chen, Yangyang and Hu, Gang and Yu, Danlei Bonnie and Zhao, Jingran, Catastrophic Risk and Institutional Investors: Evidence from Institutional Trading around 9/11 (November 27, 2018). Available at SSRN: https://ssrn.com/abstract=3252880 or http://dx.doi.org/10.2139/ssrn.3252880

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Gang Hu (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

Danlei Bonnie Yu

Hong Kong Polytechnic University, School of Accounting and Finance, Students ( email )

Hung Hom
Kowloon
Hong Kong

Jingran Zhao

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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