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
Citation
HUANG, Sheng; RINGGENBERG, Matthew C.; and ZHANG, Zhe.
The information in asset fire sales. (2023). Management Science. 69, (9), 5066-5086.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7262
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/10.1287/mnsc.2022.4585