Economics, Econometrics and Finance
4 years ago

Hedge funds profit from distressed mutual funds, exploiting predictable trades.

National Bureau of Economic Research
Do Hedge Funds Profit From Mutual-Fund Distress?
Joseph Chen, Samuel Hanson, Harrison Hong, Jeremy C. Stein

Paper Summary

Hedge funds may make money by trading before distressed mutual funds sell stocks. Evidence shows that when more mutual funds are struggling, hedge funds' profits go up. Also, short selling of stocks increases before distressed mutual funds sell them.

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