Open-End Organizational Structures and Limits to Arbitrage

Kahraman, Bige and Giannetti, Mariassunta (2018) Open-End Organizational Structures and Limits to Arbitrage. Review of Financial Studies, 31 (2). pp. 773-810.

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Abstract

We provide evidence that open-end organizational structures undermine incentives for asset managers to attack long-term mispricing. We compare open-end funds with closed-end funds. Closed-end funds purchase more underpriced stocks than do open-end funds, especially if the stocks involve high arbitrage risk. We then show that hedge funds with highshare restrictions having a lower degree of open-endedness also trade against long-term mispricing to a larger extentthan do other hedge funds. Our analysis suggests that open-end organizational structures are not conducive to long-term risky arbitrage.

Item Type: Article
Keywords: Limits to Arbitrage, Redemption Risk, Capital Structure, Market Efficiency, finance
Subject(s): Finance
Date Deposited: 17 Mar 2017 15:45
Last Modified: 12 Sep 2018 15:51
Funders: not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6315

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