Front-running of mutual fund fire-sales

Teodor Dyakov and Marno Verbeek

Journal of Banking & Finance, 2013, vol. 37, issue 12, 4931-4942

Abstract: We show that a real-time trading strategy which front-runs the anticipated forced sales by mutual funds experiencing extreme capital outflows generates an alpha of 0.5% per month during the 1990–2010 period. The abnormal return stems from selling pressure among stocks that are below the NYSE mean size and cannot be attributed to the arrival of public information. While the largest stocks also exhibit downward price pressure, their prices revert before the front-running strategy can detect it. The duration of the anticipated selling pressure has decreased from about a month in the 1990s to about two weeks in the most recent decade. Our results suggest that publicly available information of fund flows and holdings exposes mutual funds in distress to predatory trading.

Keywords: Mutual funds; Front-running; Fire-sales; Disclosure (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 G23 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:12:p:4931-4942

DOI: 10.1016/j.jbankfin.2013.08.013

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