Investors' horizons and the amplification of market shocks

Cristina Cella, Andrew Ellul and Mariassunta Giannetti

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper shows that during episodes of market turmoil 13F institutional investors with short trading horizons sell their stockholdings to a larger extent than 13F institutional investors with longer trading horizons. This creates price pressure for stocks mostly held by short horizon investors, which, as a consequence, experience larger price drops, and subsequent reversals, than stocks mostly held by long horizon investors. These findings, obtained after controlling for the withdrawals experienced by the investors, are not driven by other institutional investors' and firms' characteristics. Overall, the evidence indicates that investors with short horizons amplify the effects of market-wide negative shocks by demanding liquidity at times when other potential buyers' capital is scarce.

Keywords: fire sales; institutional investors; investor horizon; market crashes; financial crisis (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G18 G22 (search for similar items in EconPapers)
Date: 2013-02-01
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Citations: View citations in EconPapers (21)

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http://eprints.lse.ac.uk/119037/ Open access version. (application/pdf)

Related works:
Journal Article: Investors' Horizons and the Amplification of Market Shocks (2013)
Working Paper: Investors' horizons and the Amplification of Market Shocks (2010)
Working Paper: Investors’ Horizons and the Amplification of Market Shocks
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119037

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