Who Trades Against Mispricing?

Mariassunta Giannetti and Bige Kahraman

No 11156, CEPR Discussion Papers from Centre for Economic Policy Research

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: Limits to arbitrage; Flow performance sensitivity; Capital structure; Market efficiency (search for similar items in EconPapers)
JEL-codes: G12 G23 (search for similar items in EconPapers)
Date: 2016-03
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