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Recovery from fast crashes: Role of mutual funds

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  • Jagannathan, Ravi
  • Pelizzon, Loriana
  • Schaumburg, Ernst
  • Sherman, Mila Getmansky
  • Yuferova, Darya

Abstract

We study the role mutual funds play in the recovery from fast intraday crashes based on data from the National Stock Exchange of India for a single large stock. During normal times, trading activity and liquidity provision by mutual funds is negligible compared to other traders at around 4% of overall activity. Nevertheless, for the two intraday market-wide crashes in our sample, price recovery took place only after mutual funds moved in. Market stability may require the presence of well-capitalized standby liquidity providers for recovery from fast crashes.

Suggested Citation

  • Jagannathan, Ravi & Pelizzon, Loriana & Schaumburg, Ernst & Sherman, Mila Getmansky & Yuferova, Darya, 2022. "Recovery from fast crashes: Role of mutual funds," Journal of Financial Markets, Elsevier, vol. 59(PB).
    • Handle: RePEc:eee:finmar:v:59:y:2022:i:pb:s1386418121000288
    DOI: 10.1016/j.finmar.2021.100646
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    More about this item

    Keywords

    Liquidity provision; Market fragility; Flash crash; Slow-moving capital;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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