Not all market participants are alike when facing crisis: Evidence from the 2015 Chinese stock market turbulence

We propose a novel framework to analyze the potentially heterogeneous roles played by different market participants in the fire-sale process during a market crash and illustrate the methodology with the 2015–16 Chinese stock market turbulence. Unlike conventional analysis focusing on one particular channel of fire sales, we establish a market-level measure of fire sales based on the decomposition of diffusion processes to quantitatively compare the contribution of various channels in driving stock prices to plummet. Empirical results identify mutual funds as the main fire-sale propagator, as well as the heterogeneities in response to the price crash among different market participants.