Brokers and Order Flow Leakage: Evidence from Fire Sales. Barbon, A., Di Maggio, M., Franzoni, F. A., & Landier, A. Technical Report ID 2991617, Social Science Research Network, Rochester, NY, November, 2017. ![Brokers and Order Flow Leakage: Evidence from Fire Sales [link]](https://bibbase.org/img/filetypes/link.svg "link")
Paper abstract bibtex Using trade-level data, we study whether brokers play a role in spreading order flow information. We focus on large portfolio liquidations, which result in temporary drops in stock prices, and identify the brokers that intermediate these trades. We show that these brokers’ best clients tend to predate on the liquidating funds: at the beginning of the fire sale, they sell their holdings in the liquidated stocks, to then cover their positions once asset prices start recovering. The predatory trades generate at least 50 basis points over ten days and cause the liquidation costs for the distressed fund to almost double. These results suggest a role of brokers in fostering predatory behavior and raise a red flag for regulators. Moreover, our findings highlight the trade-off between slow execution and potential information leakage in the decision of optimal trading speed.
@techreport{barbon_brokers_2017,
address = {Rochester, NY},
type = {{SSRN} {Scholarly} {Paper}},
title = {Brokers and {Order} {Flow} {Leakage}: {Evidence} from {Fire} {Sales}},
shorttitle = {Brokers and {Order} {Flow} {Leakage}},
url = {https://papers.ssrn.com/abstract=2991617},
abstract = {Using trade-level data, we study whether brokers play a role in spreading order flow information. We focus on large portfolio liquidations, which result in temporary drops in stock prices, and identify the brokers that intermediate these trades. We show that these brokers’ best clients tend to predate on the liquidating funds: at the beginning of the fire sale, they sell their holdings in the liquidated stocks, to then cover their positions once asset prices start recovering. The predatory trades generate at least 50 basis points over ten days and cause the liquidation costs for the distressed fund to almost double. These results suggest a role of brokers in fostering predatory behavior and raise a red flag for regulators. Moreover, our findings highlight the trade-off between slow execution and potential information leakage in the decision of optimal trading speed.},
language = {en},
number = {ID 2991617},
urldate = {2018-02-12},
institution = {Social Science Research Network},
author = {Barbon, Andrea and Di Maggio, Marco and Franzoni, Francesco A. and Landier, Augustin},
month = nov,
year = {2017},
keywords = {finance, collapse},
file = {Barbon et al. - 2017 - Brokers and Order Flow Leakage Evidence from Fire.pdf:C\:\\Users\\rsrs\\Documents\\Zotero Database\\storage\\3IRJYPVH\\Barbon et al. - 2017 - Brokers and Order Flow Leakage Evidence from Fire.pdf:application/pdf}
}
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