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Brokers and Order Flow Leakage: Evidence from Fire Sales

Informazioni aggiuntive

Autori
Barbon A., Franzoni F., Di Maggio M., Landier A.
Tipo
Articolo pubblicato in rivista scientifica
Anno
2019
Lingua
Inglese
Abstract
Using trade-level data, we study whether brokers play a role in spreading order flow information. We focus on large portfolio liquidations, which result in temporary drops in stock prices, and identify the brokers that intermediate these trades. We show that these brokers’ best clients tend to predate on the liquidating funds: at the beginning of the fire sale, they sell their holdings in the liquidated stocks, to then cover their positions once asset prices start recovering. The predatory trades generate at least 50 basis points over ten days and cause the liquidation costs for the distressed fund to almost double. These results suggest a role of brokers in fostering predatory behavior and raise a red flag for regulators. Moreover, our findings highlight the trade-off between slow execution and potential information leakage in the decision of optimal trading speed.
Rivista
Journal of Finance
Pagina inizio
1
Pagina fine
43
Parole chiave
Brokers, Order Flow, Fire Sales, Predatory Trading, Information