Price and Liquidity Spillovers during Fire Sale Episodes

Pekka Honkanen () and Daniel Schmidt ()

No 1214, HEC Research Papers Series from HEC Paris

Abstract: We study price and liquidity spillovers in U.S. stock markets around mutual fund fire sales. We find that the well-documented impact-reversal pattern for the returns of fire sale stocks (e.g., Coval and Stafford, 2007) spills over onto the stock returns of economic peers, with a magnitude that is around one fifth of the original effect. These spillovers extend to liquidity and are not explained by common funding shocks or the hedging activity of liquidity providers. We conclude that they represent information spillovers due to learning from prices, thus identifying cross-asset learning as an important driver for the commonality in returns and liquidity.

Keywords: Learning; Spillovers; Liquidity; Comovement; Rational Expectations (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2017-06-01, Revised 2017-07-07
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1214

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