Slow Moving Capital

17 Pages Posted: 31 Jan 2007 Last revised: 10 Mar 2021

See all articles by Mark L. Mitchell

Mark L. Mitchell

University of Chicago - Booth School of Business; AQR Capital Management, LLC; CNH Partners

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

Todd C. Pulvino

AQR Capital Management, LLC; CNH Partners

Multiple version iconThere are 3 versions of this paper

Date Written: January 2007

Abstract

We study three cases in which specialized arbitrageurs lost significant amounts of capital and, as a result, became liquidity demanders rather than providers. The effects on security markets were large and persistent: Prices dropped relative to fundamentals and the rebound took months. While multi-strategy hedge funds who were not capital constrained increased their positions, a large fraction of these funds actually acted as net sellers consistent with the view that information barriers within a firm (not just relative to outside investors) can lead to capital constraints for trading desks with mark-to-market losses. Our findings suggest that real world frictions impede arbitrage capital.

Suggested Citation

Mitchell, Mark L. and Pedersen, Lasse Heje and Pulvino, Todd C., Slow Moving Capital (January 2007). NBER Working Paper No. w12877, Available at SSRN: https://ssrn.com/abstract=960451

Mark L. Mitchell

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

CNH Partners ( email )

One Greenwich Plaza
2nd Floor
Greenwich, CT 06830
United States
(203) 742-3001 (Phone)

Lasse Heje Pedersen (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

New York University (NYU) ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Todd C. Pulvino

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

CNH Partners ( email )

2 Greenwich Plaza
1st Floor
Greenwich, CT 06830
United States
203-742-3002 (Phone)
203-742-3072 (Fax)

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