Working Paper: NBER ID: w24098
Authors: Mila Getmansky; Ravi Jagannathan; Loriana Pelizzon; Ernst Schaumburg; Darya Yuferova
Abstract: We study the role mutual funds play in the recovery from fast intraday crashes based on data from the National Stock Exchange of India for a single large stock. During normal times, trading activity and liquidity provision by mutual funds is negligible compared to other traders at around 4% of overall activity. Nevertheless, for the two intraday marketwide crashes in our sample, price recovery took place only after mutual funds moved in. Market stability may require the presence of well-capitalized standby liquidity providers for recovery from fast crashes.
Keywords: mutual funds; liquidity provision; stock price crashes; market recovery
JEL Codes: G00; G1; G12; G14; G18; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MFs' buying does not result from prior price increases (G19) | lack of reverse causality (C22) |
| MFs' actions (G34) | market stability (D53) |
| FIIs and MFs trading patterns (G15) | correlations before, during, and after crashes (C10) |
| FIIs' large sell orders (G15) | stock price crashes (G01) |
| MFs' buying during crash days (G14) | increase in prices (E31) |
| MFs' buying during crash days (G14) | market recovery (G10) |