Open-End Organizational Structures and Limits to Arbitrage

Mariassunta Giannetti; Bige Kahraman

doi:10.1093/rfs/hhx057

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Open-End Organizational Structures and Limits to Arbitrage

Mariassunta Giannetti¹; Bige Kahraman²

¹ Stockholm School of Economics, CEPR, and ECGI · ² Saïd Business School, University of Oxford

Review of Financial Studies 2018

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. Received November 4, 2015; editorial decision March 10, 2017 by Editor Andrew Karolyi.

DOI: 10.1093/rfs/hhx057
Volume: 31 (2)
Pages: 773-810
Language: en
Export: BibTeX
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