Open-end Organizational Structures and Limits to Arbitrage

Review of Financial Studies, Forthcoming

Swedish House of Finance Research Paper No. 14-09

70 Pages Posted: 22 Apr 2014 Last revised: 14 Mar 2017

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Bige Kahraman

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2017

Abstract

We provide evidence that open-end structures undermine asset managers’ incentives to attack long-term mispricing. First, we compare open-end funds with closed-end funds. Closed-end funds purchase more underpriced stocks than open-end funds, especially if the stocks involve high arbitrage risk. We then show that hedge funds with high share restrictions, having a lower degree of open-ending, also trade against long-term mispricing to a larger extent than other hedge funds. Our analysis suggests that open-end organizational structures are not conducive to long-term risky arbitrage.

Keywords: Limits to Arbitrage, Redemption Risk, Capital Structure, Market Efficiency

JEL Classification: G12, G23

Suggested Citation

Giannetti, Mariassunta and Kahraman, Bige, Open-end Organizational Structures and Limits to Arbitrage (March 1, 2017). Review of Financial Studies, Forthcoming; Swedish House of Finance Research Paper No. 14-09. Available at SSRN: https://ssrn.com/abstract=2427432 or http://dx.doi.org/10.2139/ssrn.2427432

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Bige Kahraman (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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