EconPapers    
Economics at your fingertips  
 

Brokers and Order Flow Leakage: Evidence from Fire Sales

Andrea Barbon, Marco Di Maggio, Francesco A. Franzoni and Augustin Landier
Additional contact information
Andrea Barbon: Università della Svizzera italiana and Swiss Finance Institute
Marco Di Maggio: Harvard Business School and National Bureau of Economic Research (NBER)
Francesco A. Franzoni: USI Lugano and Swiss Finance Institute

No 17-61, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using trade-level data, we study whether brokers play a role in spreading order flow information. We focus on large portfolio liquidations, which result in temporary drops in stock prices, and identify the brokers that intermediate these trades. We show that these brokers’ best clients tend to predate on the liquidating funds: at the beginning of the fire sale, they sell their holdings in the liquidated stocks, to then cover their positions once asset prices start recovering. The predatory trades generate at least 50 basis points over ten days and cause the liquidation costs for the distressed fund to almost double. These results suggest a role of brokers in fostering predatory behavior and raise a red flag for regulators. Moreover, our findings highlight the trade-off between slow execution and potential information leakage in the decision of optimal trading speed.

Keywords: Predatory Trading; Back Running; Fire Sales; Brokers (search for similar items in EconPapers)
JEL-codes: G1 G12 G23 G24 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2017-06, Revised 2018-06
New Economics Papers: this item is included in nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2991617 (application/pdf)

Related works:
Journal Article: Brokers and Order Flow Leakage: Evidence from Fire Sales (2019) Downloads
Working Paper: Brokers and Order Flow Leakage: Evidence from Fire Sales (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1761

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal (rps@sfi.ch).

 
Page updated 2024-11-30
Handle: RePEc:chf:rpseri:rp1761