DP11156 Who Trades Against Mispricing?

Author(s):	Mariassunta Giannetti, Bige Kahraman
Publication Date:	March 2016
Keyword(s):	Capital Structure, Flow performance Sensitivity, Limits to Arbitrage, Market Efficiency
JEL(s):	G12, G23
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=11156

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.