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Who Trades Against Mispricing?

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  • Giannetti, Mariassunta
  • Kahraman, Bige

Abstract

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.

Suggested Citation

  • Giannetti, Mariassunta & Kahraman, Bige, 2016. "Who Trades Against Mispricing?," CEPR Discussion Papers 11156, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:11156
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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