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.
Originalsprache | Englisch |
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Publikationsstatus | Veröffentlicht - 2018 |
Österreichische Systematik der Wissenschaftszweige (ÖFOS)
- 502009 Finanzwirtschaft