Publication Type

Journal Article

Version

acceptedVersion

Publication Date

9-2023

Abstract

Asset prices remain depressed for years following mutual fund fire sales, but little is known about the causes of these price drops. We show that asymmetric information generates price pressure during fire sales. We separate trades into expected trades, which assume fund managers scale down their portfolio, and discretionary trades. We find that discretionary trades contain fundamental information, whereas expected trades do not. Moreover, other traders cannot distinguish between discretionary and expected trades. Our findings help explain the magnitude and persistence of fire sale discounts: fund managers choose which assets to sell, and information asymmetries make it difficult for arbitrageurs to disentangle price pressure from fundamental information.

Keywords

asymmetric information, fire sales, price pressure, slow-moving capital

Discipline

Corporate Finance | Finance and Financial Management

Research Areas

Finance

Publication

Management Science

Volume

69

Issue

9

First Page

5066

Last Page

5086

ISSN

0025-1909

Identifier

10.1287/mnsc.2022.4585

Publisher

INFORMS

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1287/mnsc.2022.4585

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