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Pekka Honkanen

is a 4th year PhD candidate at HEC Paris. His research interests include short selling and exchange traded funds. He is currently working on projects relating to changes in securities lending supply, and how this affects short selling activity. Pekka earned a BSc in Accounting and Finance from the London School of Economics and Political Science and a MSc in Economics from Paris School of Economics prior to joining HEC.

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Pekka Honkanen, Daniel Schmidt: Price and Liquidity Spillovers during Fire Sale Episodes

We study price and liquidity spillovers in U.S. stock markets around mutual fund fire sales. We find that the well‐documented impact‐reversal pattern for the returns of fire sale stocks (e.g., Coval and Stafford, 2007) spills over onto the stock returns of economic peers, with a magnitude that is around one fifth of the original effect. These spillovers extend to liquidity and do not seem to be driven by common funding shocks or the hedging activity of liquidity providers. We conclude that they represent information spillovers due to learning from prices, thus identifying cross‐asset learning as an important driver for the commonality in returns and liquidity.

Last modified: 2018.11.30.