Investors' horizons and the amplification of market shocks

Cella, Cristina, Ellul, Andrew and Giannetti, Mariassunta (2013) Investors' horizons and the amplification of market shocks. Financial Markets Group Discussion Papers (717). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

This paper shows that during episodes of market turmoil 13F institutional investors with short trading horizons sell their stockholdings to a larger extent than 13F institutional investors with longer trading horizons. This creates price pressure for stocks mostly held by short horizon investors, which, as a consequence, experience larger price drops, and subsequent reversals, than stocks mostly held by long horizon investors. These findings, obtained after controlling for the withdrawals experienced by the investors, are not driven by other institutional investors' and firms' characteristics. Overall, the evidence indicates that investors with short horizons amplify the effects of market-wide negative shocks by demanding liquidity at times when other potential buyers' capital is scarce.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2013 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance; Insurance Companies
Date Deposited:	08 Jun 2023 15:45
Last Modified:	14 Sep 2024 04:30
URI:	http://eprints.lse.ac.uk/id/eprint/119037

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