Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • December 2019
  • Article
  • Journal of Finance

Brokers and Order Flow Leakage: Evidence from Fire Sales

By: Andrea Barbon, Marco Di Maggio, Francesco Franzoni and Augustin Landier
  • Format:Print
ShareBar

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 in order 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 broker’s role 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.

Keywords

Predatory Trading; Back Running; Fire Sales; Brokers; Stocks; Price; Information; Knowledge Dissemination; Ethics

Citation

Barbon, Andrea, Marco Di Maggio, Francesco Franzoni, and Augustin Landier. "Brokers and Order Flow Leakage: Evidence from Fire Sales." Journal of Finance 74, no. 6 (December 2019): 2707–2749. (LEAD ARTICLE.)
  • Find it at Harvard
  • Read Now

About The Author

Marco Di Maggio

Finance
→More Publications

More from the Authors

    • July 2022
    • Journal of Financial Economics

    The Pass-Through of Uncertainty Shocks to Households

    By: Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao and Edison Yu
    • March 2022
    • Faculty Research

    Esusu: Solving Homelessness Backwards

    By: Marco Di Maggio and Emily Williams
    • October 2021 (Revised February 2022)
    • Faculty Research

    Esusu: Solving Homelessness Backwards

    By: Marco Di Maggio, Emily Williams and Eren Kuzucu
More from the Authors
  • The Pass-Through of Uncertainty Shocks to Households By: Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao and Edison Yu
  • Esusu: Solving Homelessness Backwards By: Marco Di Maggio and Emily Williams
  • Esusu: Solving Homelessness Backwards By: Marco Di Maggio, Emily Williams and Eren Kuzucu
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College