Year: 2007
Type: article
Abstract: We study three cases in which specialized arbitrageurs lost significant amounts of capital and, as a result, became liquidity demanders rather than providers.The effects on security markets were large and persistent: Prices dropped relative to fundamentals and the rebound took months.While multi-strategy hedge funds who were not capital constrained increased their positions, a large fraction of these funds actually acted as net sellers consistent with the view that information barriers within a firm (not just relative to outside investors) can lead to capital constraints for trading desks with mark-to-market losses.Our findings suggest that real world frictions impede arbitrage capital.
Source: American Economic Review
DOI: 10.3386/w12877
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1576952511