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Are mutual funds sitting ducks?

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  • Shive, Sophie
  • Yun, Hayong
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    Abstract

    We find that patient traders profit from the predictable, flow-induced trades of mutual funds. In anticipation of a 1%-of-volume change in mutual fund flows into a stock next quarter, the institutions in the same 13F category as hedge funds trade 0.29–0.45% of volume in the current quarter. A third of the trading is associated with the subset of 504 identified hedge funds. The effect is stronger when quarterly mutual fund portfolio disclosure is required and among hedge funds with more patient capital. A one standard deviation higher measure of anticipatory trading by a hedge fund is associated with a 0.9% higher annualized four-factor alpha. A one standard deviation higher measure of anticipation of a mutual fund's trades by institutions is associated with a 0.07–0.15% lower annualized four-factor alpha. The effect is stronger for more constrained mutual funds.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 107 (2013)
    Issue (Month): 1 ()
    Pages: 220-237

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    Handle: RePEc:eee:jfinec:v:107:y:2013:i:1:p:220-237

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Mutual funds; Hedge funds; Anticipatory trading;

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    References

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    Cited by:
    1. Dyakov, Teodor & Verbeek, Marno, 2013. "Front-running of mutual fund fire-sales," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4931-4942.

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