TY  - JOUR
AU  - Coval,Joshua D.
AU  - Stafford,Erik
TI  - Asset Fire Sales (and Purchases) in Equity Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11357
PY  - 2005
Y2  - May 2005
UR  - http://www.nber.org/papers/w11357
L1  - http://www.nber.org/papers/w11357.pdf
N1  - Author contact info:
Joshua D. Coval
Harvard Business School
Soldiers Field
Boston, MA 02163
Tel: 617/495-5056
Fax: 617/496-8443
E-Mail: jcoval@hbs.edu

Erik Stafford
Graduate School of Business
Harvard University
Baker 371
Boston, MA 02163
Tel: 617/495-8064
E-Mail: estafford@hbs.edu
AB  - This paper examines asset fire sales, and institutional price pressure more generally, in equity markets, using market prices of mutual fund transactions caused by capital flows from 1980 to 2003. Funds experiencing large outflows (inflows) tend to decrease (increase) existing positions, which creates price pressure in the securities held in common by these funds. Forced transactions represent a significant cost of financial distress for mutual funds. We find that investors who trade against constrained mutual funds earn highly significant returns for providing liquidity when few others are willing or able. In addition, future flow-driven transactions are predictable, creating an incentive to front-run the anticipated forced trades by funds experiencing extreme capital flows.
ER  -