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Adverse Information and Mutual Fund Runs

Meijun Qian

National University of Singapore

Başak Tanyeri

Bilkent University

August 18, 2011

24th Australasian Finance and Banking Conference 2011 Paper

This paper is the first one to document that anticipation of adverse events can trigger runs in mutual funds. Using the event of the 2003 and 2004 litigations filed in the U.S. over market-timing and late-trading practices, we find that runs start as early as six months before litigation announcements. The pre-event runs are about half the size of runs that follow announcements, which is about 1% of total assets per month. In addition, investors who run before litigation announcements earn significantly higher risk- and peer-adjusted returns than those who run after because, as the return data on fund holdings show, because the former avoid fire-sale costs. In funds holding illiquid assets or funds incurring large outflows, the cumulative differences in abnormal returns can be as high as 6%. Hence, our analysis suggests that a pro-rata ownership design is not sufficient to prevent runs in mutual funds.

Number of Pages in PDF File: 41

Keywords: Silent runs, adverse event, mutual fund flows, returns

JEL Classification: G23, G14

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Date posted: March 20, 2009 ; Last revised: August 28, 2011

Suggested Citation

Qian, Meijun and Tanyeri, Başak, Adverse Information and Mutual Fund Runs (August 18, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: http://ssrn.com/abstract=1362492 or http://dx.doi.org/10.2139/ssrn.1362492

Contact Information

Meijun Qian (Contact Author)
National University of Singapore ( email )
1 Business Link
Singapore, 117592
Başak Tanyeri
Bilkent University ( email )
06533 Bilkent, Ankara
903122901871 (Phone)
HOME PAGE: http://www.bilkent.edu.tr/~basak
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