Publication Type

Working Paper

Version

submittedVersion

Publication Date

6-2019

Abstract

Duplicate record, see https://ink.library.smu.edu.sg/lkcsb_research/5894/. Asset prices remain depressed for several years following mutual fund fire sales. We show that price pressure from fire sales 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 selling skill. 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 and Financial Management

Research Areas

Finance

First Page

1

Last Page

54

Identifier

10.2139/ssrn.2735172

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.2139/ssrn.2735172

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