Discussion paper

DP11156 Who Trades Against Mispricing?

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.


Kahraman, B and M Giannetti (2016), ‘DP11156 Who Trades Against Mispricing?‘, CEPR Discussion Paper No. 11156. CEPR Press, Paris & London. https://cepr.org/publications/dp11156