Are mutual funds sitting ducks?

Sophie Shive and Hayong Yun

Journal of Financial Economics, 2013, vol. 107, issue 1, 220-237

Abstract: We find that patient traders profit from the predictable, flow-induced trades of mutual funds. In anticipation of a 1%-of-volume change in mutual fund flows into a stock next quarter, the institutions in the same 13F category as hedge funds trade 0.29–0.45% of volume in the current quarter. A third of the trading is associated with the subset of 504 identified hedge funds. The effect is stronger when quarterly mutual fund portfolio disclosure is required and among hedge funds with more patient capital. A one standard deviation higher measure of anticipatory trading by a hedge fund is associated with a 0.9% higher annualized four-factor alpha. A one standard deviation higher measure of anticipation of a mutual fund's trades by institutions is associated with a 0.07–0.15% lower annualized four-factor alpha. The effect is stronger for more constrained mutual funds.

Keywords: Mutual funds; Hedge funds; Anticipatory trading (search for similar items in EconPapers)
JEL-codes: G12 G18 G23 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:107:y:2013:i:1:p:220-237

DOI: 10.1016/j.jfineco.2012.08.012

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