Asset Fire Sales (and Purchases) in Equity Markets / Joshua D. Coval, Erik Stafford.

Format:

Book

Author/Creator:

Coval, Joshua D.

Contributor:

National Bureau of Economic Research.

Stafford, Erik.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11357.

NBER working paper series no. w11357

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Asset Fire Sales

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

This paper examines asset fire sales, and institutional price pressure more generally, in equity markets, using market prices of mutual fund transactions caused by capital flows from 1980 to 2003. Funds experiencing large outflows (inflows) tend to decrease (increase) existing positions, which creates price pressure in the securities held in common by these funds. Forced transactions represent a significant cost of financial distress for mutual funds. We find that investors who trade against constrained mutual funds earn highly significant returns for providing liquidity when few others are willing or able. In addition, future flow-driven transactions are predictable, creating an incentive to front-run the anticipated forced trades by funds experiencing extreme capital flows.

Notes:

Print version record

May 2005.