Fire Sale Risk and Expected Stock Returns

87 Pages Posted: 11 Aug 2020 Last revised: 28 Jul 2023

See all articles by George O. Aragon

George O. Aragon

Arizona State University (ASU) - Finance Department

Min S. Kim

Boston University; Financial Research Network (FIRN)

Date Written: June 22, 2023


We measure a stock's exposure to fire sale risk through its ownership links to mutual funds that anticipate significant outflows during periods of systematic outflows from the fund industry. We find that stocks with higher exposure to this risk earn higher average returns: a portfolio that buys (shorts) stocks with the highest (lowest) exposure outperforms by 3-7% annually. Our findings cannot be explained by several known determinants of average returns and support the ex-ante pricing of the risk of fire sales. We conclude that stocks' exposures to risks inherited from the constraints of shareholders have important implications for stock prices.

Keywords: fire sales, stock returns, ownership, mutual fund, fund flows

JEL Classification: G11, G12, G23

Suggested Citation

Aragon, George O. and Kim, Min S., Fire Sale Risk and Expected Stock Returns (June 22, 2023). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: or

George O. Aragon (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Min S. Kim

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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