Working Paper: CEPR ID: DP10536
Authors: Massimo Massa; Lei Zhang
Abstract: We study the relation between information and fire sales during a crisis. We argue that the reinforcing effect of funding liquidity on market liquidity is weaker when investors have more information about the assets facing sudden price drops (Brunnermeier and Pedersen, 2009). We focus on the affiliation of international asset managers with banking conglomerates. We document that bank affiliation provides an informational advantage. We show that (informed) bank-affiliated foreign ownership before the crisis predicts higher stock liquidity, lower extreme negative return realizations, lower short-selling demand, lower comovement (R2) with the market and higher price informativeness during the crisis.
Keywords: bank-affiliation; fire sales; global asset managers; international crisis; international liquidity; transmission
JEL Codes: G10; G15; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank-affiliated ownership before the crisis (G21) | lower drops in stock liquidity during the crisis (G01) |
| bank-affiliated ownership before the crisis (G21) | lower increases in negative return skewness during the crisis (G01) |
| bank-affiliated ownership before the crisis (G21) | higher returns during the crisis (G01) |
| bank-affiliated ownership before the crisis (G21) | lower price drops during the crisis (E30) |
| informed investors (G14) | mitigates impact of fire sales on stock prices (E44) |
| bank-affiliated funds trading behavior (G23) | less correlated with market movements during the crisis (G19) |