Litigations and Mutual Fund Runs

33 Pages Posted: 22 Feb 2016 Last revised: 23 Feb 2016

Meijun Qian

Australian National University (ANU) - College of Business and Economics

Başak Tanyeri

Bilkent University

Abstract

This paper investigates whether anticipation of adverse events (litigations over market-timing and late-trading) can trigger runs in mutual funds. We find that runs start as early as four months before litigation announcements. The pre-event runs over a six-month window accumulate to 4.95% of total net assets and post-event runs last over two years and accumulate to 7.94% for the first six months window. Additionally, investors who run before litigation announcements earn significantly higher risk- and peer-adjusted returns, as high as 1.16% more than those who run after. The difference in returns is particularly high for funds holding illiquid assets. Our analysis suggests that a pro-rata ownership design does not suffice to prevent runs in mutual funds.

Keywords: Mutual fund flows, runs, and returns

JEL Classification: G23, G14

Suggested Citation

Qian, Meijun and Tanyeri, Başak, Litigations and Mutual Fund Runs. Melbourne Business School, 2016 Financial Institutions, Regulation & Corporate Governance (FIRCG) Conference. Available at SSRN: https://ssrn.com/abstract=2735959 or http://dx.doi.org/10.2139/ssrn.2735959

Meijun Qian

Australian National University (ANU) - College of Business and Economics ( email )

Canberra
Australia

Başak Tanyeri (Contact Author)

Bilkent University ( email )

06533 Bilkent, Ankara
Turkey
903122901871 (Phone)

HOME PAGE: http://www.bilkent.edu.tr/~basak

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