Short-Sale Constraints and the Pricing of Managerial Skills

65 Pages Posted: 7 Aug 2012 Last revised: 14 Aug 2015

See all articles by Si Cheng

Si Cheng

Chinese University of Hong Kong - Department of Finance

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2012

Abstract

We investigate the impact of the absence of short selling on the pricing of managerial skills in the mutual fund industry. In the presence of divergent opinions regarding managerial skills, fund managers can strategically use fees to attract only the most optimistic capital. The recognition of this fee strategy helps explain a set of stylized observations and puzzles in the mutual fund industry, including the underperformance of active funds, the existence of flow convexity, and the negative correlation between gross-of-fee α and fees.

Keywords: Managerial skills, mutual funds, short-sale constraint

JEL Classification: G1, G2, J0

Suggested Citation

Cheng, Si and Massa, Massimo and Zhang, Hong, Short-Sale Constraints and the Pricing of Managerial Skills (October 5, 2012). INSEAD Working Paper No. 2012/92/FIN. Available at SSRN: https://ssrn.com/abstract=2125586 or http://dx.doi.org/10.2139/ssrn.2125586

Si Cheng

Chinese University of Hong Kong - Department of Finance ( email )

12/F, Cheng Yu Tung Building
No.12, Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/cheng-si/

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Hong Zhang (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

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