Open-end organizational structures and limits to arbitrage

Kahraman, Bige and Giannetti, Mariassunta (2017) Open-end organizational structures and limits to arbitrage. The Review of Financial Studies. (Accepted)

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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 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: 17 Mar 2017 15:45
Funders: not applicable

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