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The Information in Asset Fire Sales

Author

Listed:
  • Sheng Huang

    (China Europe International Business School (CEIBS), Pudong, Shanghai 201206, China)

  • Matthew C. Ringgenberg

    (David Eccles School of Business, University of Utah, Salt Lake City, Utah 84112)

  • Zhe Zhang

    (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899, Singapore)

Abstract

Asset prices remain depressed for years following mutual fund fire sales, but little is known about the causes of these price drops. We show that asymmetric information generates price pressure during fire sales. We separate trades into expected trades, which assume fund managers scale down their portfolio, and discretionary trades. We find that discretionary trades contain fundamental information, whereas expected trades do not. Moreover, other traders cannot distinguish between discretionary and expected trades. Our findings help explain the magnitude and persistence of fire sale discounts: fund managers choose which assets to sell, and information asymmetries make it difficult for arbitrageurs to disentangle price pressure from fundamental information.

Suggested Citation

  • Sheng Huang & Matthew C. Ringgenberg & Zhe Zhang, 2023. "The Information in Asset Fire Sales," Management Science, INFORMS, vol. 69(9), pages 5066-5086, September.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:9:p:5066-5086
    DOI: 10.1287/mnsc.2022.4585
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    Cited by:

    1. Rzeźnik, Aleksandra, 2025. "Skilled active liquidity management: Evidence from shocks to fund flows," Journal of Empirical Finance, Elsevier, vol. 81(C).
    2. Dyer, Travis & Guest, Nicholas & Yu, Elisha, 2025. "New accounting standards and the performance of quantitative investors," Journal of Accounting and Economics, Elsevier, vol. 79(2).
    3. Caiazzo, Emmanuel & Zazzaro, Alberto, 2025. "Bank diversity and financial contagion," Journal of Financial Stability, Elsevier, vol. 77(C).

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