Money in the Right Hands: The Price Effects of Specialized Demand

62 Pages Posted: 3 Feb 2022

See all articles by Aleksandra Rzeźnik

Aleksandra Rzeźnik

York University

Rüdiger Weber

WU Vienna; Vienna Graduate School of Finance (VGSF)

Date Written: January 31, 2022


We study stock liquidity from a demand-based perspective in the context of mutual fund fire sales. Specifically, we show that active and specialized demand is a key determinant of fire sale price discounts. Only when there is a lack of specialized demand, as proxied by inflows to active, specialized funds, do we observe the marked price pressure effects recorded previously in the literature. Inflows to passive funds have little to no impact on price discounts, pointing to the importance of active mandates for price efficiency. Our findings are robust to using the exogenous variation in fire sale pressure due to the 2003 late trading scandal. Asset quality and adverse selection do not explain the result. Rather, our results suggest inefficient allocations induced by forced sales as an explanation for price pressure. This implies that fire-sale pressure in the absence of active specialized demand can be interpreted as a non-fundamental shock to prices.

Keywords: Demand-based asset pricing, Mutual Funds, Fire Sales, Liquidity

JEL Classification: G11, G12, G14, G23

Suggested Citation

Rzeźnik, Aleksandra and Weber, Rüdiger, Money in the Right Hands: The Price Effects of Specialized Demand (January 31, 2022). Available at SSRN: or

Aleksandra Rzeźnik (Contact Author)

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3

Rüdiger Weber

WU Vienna ( email )

Welthandelsplatz 1 1
Wien, 1020

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020

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