Front-running of Mutual Fund Fire-sales

T.C. Dyakov, M. Verbeek

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We show that a real-time trading strategy which front-runs the anticipated forced sales by mutual funds experiencing extreme capital outflows generates an alpha of 0.5% per month during the 1990-2010 period. The abnormal return stems from selling pressure among stocks that are below the NYSE mean size and cannot be attributed to the arrival of public information. While the largest stocks also exhibit downward price pressure, their prices revert before the front-running strategy can detect it. The duration of the anticipated selling pressure has decreased from about a month in the 1990s to about two weeks in the most recent decade. Our results suggest that publicly available information of fund flows and holdings exposes mutual funds in distress to predatory trading. © 2013 Elsevier B.V.
LanguageEnglish
Pages4931-4942
JournalJournal of Banking and Finance
Volume37
Issue number12
DOIs
Publication statusPublished - 2013

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Mutual funds
New York Stock Exchange
Price pressure
Capital outflows
Abnormal returns
Fundholding
Public information
Trading strategies
Distress

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Dyakov, T.C. ; Verbeek, M. / Front-running of Mutual Fund Fire-sales. In: Journal of Banking and Finance. 2013 ; Vol. 37, No. 12. pp. 4931-4942.
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Front-running of Mutual Fund Fire-sales. / Dyakov, T.C.; Verbeek, M.

In: Journal of Banking and Finance, Vol. 37, No. 12, 2013, p. 4931-4942.

Research output: Contribution to JournalArticleAcademicpeer-review

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