Discussion Paper Details

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Title: Short-Sale Constraints and the Pricing of Managerial Skills

Author(s): Si Cheng, Massimo Massa and Hong Zhang

Publication Date: March 2015

Keyword(s): Managerial skills, mutual funds and short-sale constraint.

Programme Area(s): Financial Economics

Abstract: We investigate the impact of the absence of short selling on the pricing of managerial skills in the mutual fund industry. In the presence of divergent opinions regarding managerial skills, fund managers can strategically use fees to attract only the most optimistic capital. The recognition of this fee strategy helps explain a set of stylized observations and puzzles in the mutual fund industry, including the underperformance of active funds, the existence of flow convexity, and the negative correlation between gross-of-fee α and fees.

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Bibliographic Reference

Cheng, S, Massa, M and Zhang, H. 2015. 'Short-Sale Constraints and the Pricing of Managerial Skills'. London, Centre for Economic Policy Research.