DP10536 Fire Sales and Information Advantage: When Informed Investor Helps

Author(s):	Massimo Massa, Lei Zhang
Publication Date:	April 2015
Keyword(s):	bank-affiliation, fire sales, global asset managers, international crisis, international liquidity., transmission
JEL(s):	G10, G15, G21
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10536

We study the relation between information and fire sales during a crisis. We argue that the reinforcing effect of funding liquidity on market liquidity is weaker when investors have more information about the assets facing sudden price drops (Brunnermeier and Pedersen, 2009). We focus on the affiliation of international asset managers with banking conglomerates. We document that bank affiliation provides an informational advantage. We show that (informed) bank-affiliated foreign ownership before the crisis predicts higher stock liquidity, lower extreme negative return realizations, lower short-selling demand, lower comovement (R2) with the market and higher price informativeness during the crisis.