Litigation and mutual-fund runs

Available
The embargo period has ended, and this item is now available.

Date

2017

Authors

Qian, M.
Tanyeri, B.

Editor(s)

Advisor

Supervisor

Co-Advisor

Co-Supervisor

Instructor

BUIR Usage Stats
1
views
23
downloads

Citation Stats

Series

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.

Source Title

Journal of Financial Stability

Publisher

Elsevier Inc.

Course

Other identifiers

Book Title

Degree Discipline

Degree Level

Degree Name

Citation

Published Version (Please cite this version)

Language

English