Informed Trading and Co-Illiquidity

Massimo Massa, Aleksandra Rzeznik, Soeren Hvidkjaer

Publikation: Working/Discussion PaperWorking Paper/Preprint

Abstract

We study the link between informed trading and co-movement in liquidity. We argue that investors concerned with liquidity and fire sale shocks respond to an increase in informed trading by shifting their portfolios away from stocks with high information asymmetry. Their rebalancing results in a substitution in ownership away from the very same investors that induce financial fragility and co-movement in liquidity. This reduces co-illiquidity of the affected stocks. We exploit a unique natural experiment that increases the incentives of informed traders to trade. Our results suggest that informed traders reduce the exposure to co-movement in liquidity: one of the major problems during the latest global financial crisis.
OriginalspracheEnglisch
PublikationsstatusVeröffentlicht - 2018

Österreichische Systematik der Wissenschaftszweige (ÖFOS)

  • 502009 Finanzwirtschaft

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