Quantitative Investing and Market Instability: Evidence from Mutual Fund Fire Sales

58 Pages Posted: 3 Apr 2025

See all articles by William Beggs

William Beggs

Knauss School of Business, University of San Diego

Austin Hill-Kleespie

G. Brint Ryan College of Business, University of North Texas

Abstract

The May 2010 Flash Crash and August 2007 Quant Meltdown raised concerns about the impact of quantitative investment strategies on market instability. We examine whether quantitative investing dampens or exacerbates market instability by focusing on mutual fund fire sales. We find that quantitative fund fire sales have a much larger impact on market instability than fire sales by traditional mutual funds. For the same magnitude fire sale, quantitative funds’ impact is more than eight times as large. The larger impact is due to quantitative funds’ reliance on similar trading strategies.

Keywords: Investment management, security selection, quantitative funds, mutual funds, fire sales, Herding, market stability

Suggested Citation

Beggs, William and Hill-Kleespie, Austin, Quantitative Investing and Market Instability: Evidence from Mutual Fund Fire Sales. Available at SSRN: https://ssrn.com/abstract=5204384 or http://dx.doi.org/10.2139/ssrn.5204384

William Beggs

Knauss School of Business, University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

HOME PAGE: http://wcbeggs.com

Austin Hill-Kleespie (Contact Author)

G. Brint Ryan College of Business, University of North Texas

Denton, TX 76203
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
39
Abstract Views
238
PlumX Metrics