Do Fire Sales Create Externalities?

Sergey Chernenko and Adi Sunderam

No 25104, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop three novel measures of how much of the price impact of their trading different mutual funds internalize. We show that mutual funds that internalize more of their price impact hold larger cash buffers and use these buffers more aggressively to accommodate inflows and outflows. As a result, stocks held by these funds have lower volatility, and flows out of these funds have smaller spillover effects on other funds holding the same securities. Our results provide evidence of meaningful fire sale externalities in the mutual fund industry.

JEL-codes: G11 G12 G18 G23 (search for similar items in EconPapers)
Date: 2018-09
Note: AP CF
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Citations: View citations in EconPapers (3)

Published as Sergey Chernenko & Adi Sunderam, 2019. "Do Fire Sales Create Externalities?," Journal of Financial Economics, .

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