Publication Type
Working Paper
Version
publishedVersion
Publication Date
9-2019
Abstract
Asset prices remain depressed for several years following mutual fund fire sales. We show that this price pressure is partly due to asymmetric information which leads to an adverse selection problem for arbitrageurs. After a flow shock, fund managers do not scale down their portfolio, rather, they choose to sell a subset of low-quality stocks that subsequently underperform. In other words, fund managers have stock selling ability. Our findings suggest an explanation for the tendency of asset prices to remain depressed following fire sales: information asymmetries make it difficult for arbitrageurs to disentangle pure price pressure from negative information.
Keywords
Adverse selection, asymmetric information, fire sales, information economics, institutional investors, slow moving capital
Discipline
Finance
Research Areas
Finance
Last Page
1
Identifier
10.2139/ssrn.2735172
Edition
54
Publisher
SSRN
Citation
HUANG, Sheng; RINGGENBERG, Matthew; and ZHANG, Zhe.
The information in asset fire sales. (2019). 1.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5894
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.2735172