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      Litigation and mutual-fund runs

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      Embargo Lift Date: 2019-08-01
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      Author
      Qian, M.
      Tanyeri, B.
      Date
      2017
      Source Title
      Journal of Financial Stability
      Print ISSN
      1572-3089
      Electronic ISSN
      1878-0962
      Publisher
      Elsevier Inc.
      Volume
      31
      Pages
      119 - 135
      Language
      English
      Type
      Article
      Item Usage Stats
      130
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      78
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      Abstract
      We investigate whether anticipation of adverse events (litigation about market timing and late trading) may trigger mutual-fund runs. We find that runs start as early as three months prior to litigation announcements. Pre-litigation runs accumulate to 31 basis points of the total net assets over a three-month window; post-litigation runs may last more than six months and accumulate to 1.25 percent over the first three-month window. Additionally, investors who run before litigation announcements earn significantly higher risk-adjusted and peer-adjusted returns than those who run after litigation. The difference in returns is particularly pronounced for funds holding illiquid assets. Finally, securities held by litigated fund families significantly underperform vis-á-vis other securities in terms of lower abnormal returns and liquidity. Our analysis suggests that a pro-rata ownership design is insufficient to prevent mutual-fund runs.
      Keywords
      Mutual-fund flows
      Litigation
      Returns
      G23
      G14
      Permalink
      http://hdl.handle.net/11693/48981
      Published Version (Please cite this version)
      https://doi.org/10.1016/j.jfs.2017.05.011
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      • Department of Management 566
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