Catastrophic risk and institutional investors : Evidence from institutional trading around 9/11

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)211-233
Journal / PublicationPacific Basin Finance Journal
Online published14 Jun 2019
Publication statusPublished - Sep 2019
Externally publishedYes


Using a large sample of transaction-level institutional trading data, we investigate the role of institutional investors in stock market around the terrorist attacks on September 11, 2001 (9/11), a sudden exogenous catastrophic shock to financial markets. We find that institutional investors remain net buyers amid the large market-wide crisis following 9/11. Furthermore, stocks that are highly bought by institutions earn higher abnormal future returns than stocks that are highly sold. We also examine trading patterns across different types of institutional investors and various industry sectors. Our results suggest that institutional investors act as liquidity providers rather than engage in panic selling during market crises caused by catastrophic events. We also find that their liquidity provision trading is rational and profitable. Overall, our findings support the market stabilization role played by institutional investors who lend a “steady hand” during high-stress periods in financial markets.

Research Area(s)

  • Catastrophic risk, Market crisis and stability, Institutional investor, Trading