Quotation Massa, Massimo, Rzeznik, Aleksandra, Hvidkjaer, Soeren. 2018. Informed Trading and Co-Illiquidity.




We study the link between informed trading and co-movement in liquidity. We argue that investors concerned with liquidity and fire sale shocks respond to an increase in informed trading by shifting their portfolios away from stocks with high information asymmetry. Their rebalancing results in a substitution in ownership away from the very same investors that induce financial fragility and co-movement in liquidity. This reduces co-illiquidity of the affected stocks. We exploit a unique natural experiment that increases the incentives of informed traders to trade. Our results suggest that informed traders reduce the exposure to co-movement in liquidity: one of the major problems during the latest global financial crisis.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Informed Trading and Co-Illiquidity
Year 2018
JEL G12, G14, G15


Rzeznik, Aleksandra (Former researcher)
Hvidkjaer, Soeren (Copenhagen Business School, Denmark)
Massa, Massimo (INSEAD, Singapore)
Institute for Finance, Banking and Insurance IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
5361 Financial management (Details)
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