Who Trades Against Mispricing?

75 Pages Posted: 18 Apr 2016

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 2016

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 an impediment to arbitrage.

Keywords: Capital Structure, Flow performance Sensitivity, Limits to Arbitrage, Market Efficiency

JEL Classification: G12, G23

Suggested Citation

Giannetti, Mariassunta and Kahraman, Bige, Who Trades Against Mispricing? (March 2016). CEPR Discussion Paper No. DP11156, Available at SSRN: https://ssrn.com/abstract=2766449

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
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Belgium

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

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Bige Kahraman

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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