Institutional trading and stock resiliency: Evidence from the 2007-2009 financial crisis

Amber Anand, Paul Irvine, Andy Puckett, Kumar Venkataraman

Research output: Contribution to journalArticle

51 Citations (Scopus)

Abstract

We examine the impact of institutional trading on stock resiliency during the financial crisis of 2007-2009. We show that buy-side institutions have different exposure to liquidity factors based on their trading style. Liquidity supplying institutions absorb the long-term order imbalances in the market and are critical to recovery patterns after a liquidity shock. We show that these liquidity suppliers withdraw from risky securities during the crisis and their participation does not recover for an extended period of time. The illiquidity of specific stocks is significantly affected by institutional trading patterns; participation by liquidity supplying institutions can ameliorate illiquidity, while participation by liquidity demanding institutions can exacerbate illiquidity. Our results provide guidance on why some stocks take longer to recover in a crisis.

Original languageEnglish (US)
Pages (from-to)773-797
Number of pages25
JournalJournal of Financial Economics
Volume108
Issue number3
DOIs
StatePublished - Jun 2013

Fingerprint

Financial crisis
Liquidity
Resiliency
Institutional trading
Illiquidity
Participation
Suppliers
Liquidity shocks
Guidance
Order imbalance
Factors

Keywords

  • Financial crisis
  • Institutional investors
  • Liquidity
  • Resiliency
  • Trading costs

ASJC Scopus subject areas

  • Accounting
  • Strategy and Management
  • Economics and Econometrics
  • Finance

Cite this

Institutional trading and stock resiliency : Evidence from the 2007-2009 financial crisis. / Anand, Amber; Irvine, Paul; Puckett, Andy; Venkataraman, Kumar.

In: Journal of Financial Economics, Vol. 108, No. 3, 06.2013, p. 773-797.

Research output: Contribution to journalArticle

Anand, Amber ; Irvine, Paul ; Puckett, Andy ; Venkataraman, Kumar. / Institutional trading and stock resiliency : Evidence from the 2007-2009 financial crisis. In: Journal of Financial Economics. 2013 ; Vol. 108, No. 3. pp. 773-797.
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