Norwegian School of Economics (NHH)
Institutional Affiliation: Norwegian School of Economics (NHH)
NBER Working Papers and Publications
|December 2017||Stock Price Crashes: Role of Slow-Moving Capital|
with Mila Getmansky, Ravi Jagannathan, Loriana Pelizzon, Ernst Schaumburg: w24098
We study the role of various trader types in providing liquidity in spot and futures markets based on complete order-book and transactions data as well as cross-market trader identifiers from the National Stock Exchange of India for a single large stock. During normal times, short-term traders who carry little inventory overnight are the primary intermediaries in both spot and futures markets, and changes in futures prices Granger-cause changes in spot prices. However, during two days of fast crashes, Granger-causality ran both ways. Both crashes were due to large-scale selling by foreign institutional investors in the spot market. Buying by short-term traders and cross-market traders was insufficient to stop the crashes. Mutual funds, patient traders with better trade-execution quality wh...