TY  - JOUR
AU  - Chen,Joseph
AU  - Hanson,Samuel
AU  - Hong,Harrison
AU  - Stein,Jeremy C.
TI  - Do Hedge Funds Profit From Mutual-Fund Distress?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13786
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13786
L1  - http://www.nber.org/papers/w13786.pdf
N1  - Author contact info:
Joseph Chen
Graduate School of Management
University of California, Davis
One Shields Avenue
3216 Gallagher Hall
Davis, CA 95616-8609
Tel: (530) 752-7155
Fax: (530) 752-2924
E-Mail: chenjs@ucdavis.edu

Samuel Hanson
Harvard Business School
Baker Library 351
Soldiers Field
Boston, MA 02163
Tel: 617/495-6137
E-Mail: shanson@hbs.edu

Harrison Hong
Department of Economics
Princeton University
26 Prospect Avenue
Princeton, NJ 08540
Tel: 609/258-0259
Fax: 609/258-0771
E-Mail: hhong@princeton.edu

Jeremy C. Stein
Federal Reserve Board of Governors
20th Street and Constitution Ave., N.W.
Washington, DC 20551
E-Mail: jeremy.c.stein@frb.gov
AB  - This paper explores the question of whether hedge funds engage in front-running 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 individual stock level, short interest rises in advance of sales by distressed mutual funds.
ER  -