Slow Moving Capital

Lasse Pedersen, Mark Mitchell and Todd Pulvino

No 6117, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Capital constraint; Convertible bond; frictions; Hedge funds; Limits of arbitrage; Liquidity; Merger arbitrage; Risk management; Valuation (search for similar items in EconPapers)
JEL-codes: G1 G12 G14 (search for similar items in EconPapers)
Date: 2007-02
New Economics Papers: this item is included in nep-cfn and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (179)

Downloads: (external link)
https://cepr.org/publications/DP6117 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Slow Moving Capital (2007)
Working Paper: Slow Moving Capital (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6117

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6117

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().