Amber Anand, Paul Irvine, Andy Puckett, and Kumar Venkataraman
Journal of Financial Economics, Volume 108, January 2013, Pages 773-797
Publication year: 2013

We examine the impact of institutional trading on stock resiliency during the financial crisis of 2007–2009. We show that buy-side institutions have different exposure to liquidity factors based on their trading style. Liquidity supplying institutions absorb the long-term order imbalances in the market and are critical to recovery patterns after a liquidity shock. We show that these liquidity suppliers withdraw from risky securities during the crisis and their participation does not recover for an extended period of time. The illiquidity of specific stocks is significantly affected by institutional trading patterns; participation by liquidity supplying institutions can ameliorate illiquidity, while parti- cipation by liquidity demanding institutions can exacerbate illiquidity. Our results provide guidance on why some stocks take longer to recover in a crisis.