Anticipatory Trading Against Distressed Mega Hedge Funds

74 Pages Posted: 9 Aug 2021 Last revised: 25 Mar 2025

See all articles by Vikas Agarwal

Vikas Agarwal

Georgia State University - J. Mack Robinson College of Business; University of Cologne - Centre for Financial Research (CFR)

George O. Aragon

Arizona State University (ASU) - Finance Department

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Kelsey D. Wei

University of Texas at Dallas

Date Written: March 25, 2025

Abstract

Stocks expected to be sold by distressed mega hedge funds (MHFs) face anticipatory institutional selling and increased short interest. However, no evidence of anticipatory trading is found in stocks held by non-distressed MHFs, distressed non-MHFs, or stocks confidentially held by distressed MHFs, suggesting that public portfolio disclosure by large and closely followed distressed traders, and not common investment signals, drives anticipatory trading. Distressed MHFs with greater exposure to such anticipatory trading suffer 2.21% lower style-adjusted returns. Stocks subject to anticipatory trading experience negative abnormal returns followed by reversals, indicating the price destabilizing effect of anticipatory trading.

Keywords: Hedge funds, Anticipatory trading, Front-running, Mega hedge funds, Fire sales

JEL Classification: G12, G20, G23

Suggested Citation

Agarwal, Vikas and Aragon, George O. and Nanda, Vikram K. and Wei, Kelsey D., Anticipatory Trading Against Distressed Mega Hedge Funds (March 25, 2025). Available at SSRN: https://ssrn.com/abstract=3899627 or http://dx.doi.org/10.2139/ssrn.3899627

Vikas Agarwal

Georgia State University - J. Mack Robinson College of Business ( email )

35 Broad Street,
Suite 1234
Atlanta, GA 30303-3083
United States
404-413-7326 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://https://sites.google.com/view/vikasagarwal

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

George O. Aragon (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Kelsey D. Wei

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
9728835978 (Phone)

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