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Publications
Publications
  • 2008
  • Mimeo

Do Hedge Funds Profit from Mutual-Fund Distress?

By: Joseph Chen, Samuel G. Hanson, Harrison Hong and Jeremy C. Stein
  • Format:Print
  • | Language:English
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Abstract

This paper explores the question of whether hedge funds engage in frontrunning strategies that exploit the predictable trades of others. One potential opportunity for front-running arises when distressed mutual funds—those suffering large outflows of assets under management—are forced to sell stocks they own. We document two pieces of evidence that are consistent with hedge funds taking advantage of this opportunity. First, in the time series, the average returns of long/short equity hedge funds are significantly higher in those months when a larger fraction of the mutual-fund sector is in distress. Second, at the individualstock level, short interest rises in advance of sales by distressed mutual funds.

Keywords

Investment Funds; Profit; Strategy; Forecasting And Prediction; Investment Return; Opportunities; Asset Management; Sales

Citation

Chen, Joseph, Samuel G. Hanson, Harrison Hong, and Jeremy C. Stein. "Do Hedge Funds Profit from Mutual-Fund Distress?" 2008. Mimeo.
  • SSRN

About The Author

Samuel G. Hanson

Finance
→More Publications

More from the Authors

    • 2020
    • Faculty Research

    Rate-Amplifying Investor Demand and the Excess Sensitivity of Long-Term Interest Rates

    By: Samuel G. Hanson, David O. Lucca and Jonathan H. Wright
    • Fall 2020
    • Brookings Papers on Economic Activity

    Business Credit Programs in the Pandemic Era

    By: Samuel Gregory Hanson, Adi Sunderam, Jeremy C. Stein and Eric Zwick
    • 2020
    • Faculty Research

    Predictable Financial Crises

    By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen
More from the Authors
  • Rate-Amplifying Investor Demand and the Excess Sensitivity of Long-Term Interest Rates By: Samuel G. Hanson, David O. Lucca and Jonathan H. Wright
  • Business Credit Programs in the Pandemic Era By: Samuel Gregory Hanson, Adi Sunderam, Jeremy C. Stein and Eric Zwick
  • Predictable Financial Crises By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen
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