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Brokers and Order Flow Leakage: Evidence from Fire Sales

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  • ANDREA BARBON
  • MARCO DI MAGGIO
  • FRANCESCO FRANZONI
  • AUGUSTIN LANDIER

Abstract

Using trade‐level data, we study whether brokers play a role in spreading order flow information in the stock market. We focus on large portfolio liquidations that result in temporary price drops, and identify the brokers who intermediate these trades. These brokers’ clients are more likely to predate on the liquidating funds than to provide liquidity. Predation leads to profits of about 25 basis points over 10 days and increases the liquidation costs of the distressed fund by 40%. This evidence suggests a role of information leakage in exacerbating fire sales.

Suggested Citation

  • Andrea Barbon & Marco Di Maggio & Francesco Franzoni & Augustin Landier, 2019. "Brokers and Order Flow Leakage: Evidence from Fire Sales," Journal of Finance, American Finance Association, vol. 74(6), pages 2707-2749, December.
    • Handle: RePEc:bla:jfinan:v:74:y:2019:i:6:p:2707-2749
    DOI: 10.1111/jofi.12840
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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