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Institutional trading and stock resiliency: Evidence from the 2007–2009 financial crisis

Amber Anand, Paul Irvine, Andy Puckett and Kumar Venkataraman

Journal of Financial Economics, 2013, vol. 108, issue 3, 773-797

Abstract: We examine the impact of institutional trading on stock resiliency during the financial crisis of 2007–2009. We show that buy-side institutions have different exposure to liquidity factors based on their trading style. Liquidity supplying institutions absorb the long-term order imbalances in the market and are critical to recovery patterns after a liquidity shock. We show that these liquidity suppliers withdraw from risky securities during the crisis and their participation does not recover for an extended period of time. The illiquidity of specific stocks is significantly affected by institutional trading patterns; participation by liquidity supplying institutions can ameliorate illiquidity, while participation by liquidity demanding institutions can exacerbate illiquidity. Our results provide guidance on why some stocks take longer to recover in a crisis.

Keywords: Institutional investors; Financial crisis; Liquidity; Trading costs; Resiliency (search for similar items in EconPapers)
JEL-codes: D82 G01 G14 G23 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:eee:jfinec:v:108:y:2013:i:3:p:773-797