Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcasts
  • About Us
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Cold Call Podcast
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    • COVID-19 Business Impact Center
      COVID-19 Business Impact Center
      Brokers and Order Flow Leakage: Evidence from Fire Sales
      11 Jan 2018Working Paper Summaries

      Brokers and Order Flow Leakage: Evidence from Fire Sales

      by Andrea Barbon, Marco Di Maggio, Francesco Franzoni, and Augustin Landier
      This study finds that brokers tend to reveal the occurrence of a fire sale to their best clients, allowing them to generate significant profits by predating on the liquidating fund. Such information leakage comes at the expense of higher price impact, and leads to a more costly liquidation for the fire sale originator.
      LinkedIn
      Email

      Author 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.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: November 2017
      • HBS Working Paper Number: HBS Working Paper #18-046
      • Faculty Unit(s): Finance
        Trending
          • 13 Jan 2021
          • Research & Ideas

          How 'Small C' Change Can Beat Large-Scale Rebuilding

          • 11 Jan 2021
          • Research & Ideas

          Is A/B Testing Effective? Evidence from 35,000 Startups

          • 13 Jul 2020
          • Research & Ideas

          Merck CEO Ken Frazier Discusses a COVID Cure, Racism, and Why Leaders Need to Walk the Talk

          • 29 Oct 2020
          • Research & Ideas

          The COVID Gender Gap: Why Fewer Women Are Dying

          • 06 Jan 2021
          • Research & Ideas

          Unexpected Exercise Advice for the Super Busy: Ditch the Rigid Routine

      Marco Di Maggio
      Marco Di Maggio
      Ogunlesi Family Associate Professor of Business Administration
      Contact
      Send an email
      → More Articles
      Find Related Articles
      • Stocks
      • Price
      • Information
      • Knowledge Dissemination
      • Ethics
      • Financial Services

      Sign up for our weekly newsletter

      Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
      ǁ
      Campus Map
      Harvard Business School Working Knowledge
      Baker Library | Bloomberg Center
      Soldiers Field
      Boston, MA 02163
      Email: Editor-in-Chief
      →Map & Directions
      →More Contact Information
      • Make a Gift
      • Site Map
      • Jobs
      • Harvard University
      • Trademarks
      • Policies
      • Digital Accessibility
      Copyright © President & Fellows of Harvard College