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Anticipatory Trading Against Distressed Mega Hedge Funds

Year: 2025

Type: article

Abstract: Stocks expected to be sold by distressed mega hedge funds (MHFs) face anticipatory institutional selling and increased short interest. However, no evidence of anticipatory trading is found in stocks held by nondistressed MHFs, distressed non-MHFs, or stocks confidentially held by distressed MHFs, suggesting that public portfolio disclosure by large and closely followed distressed investors, and not common investment signals, drives anticipatory trading. Distressed MHFs with greater exposure to such anticipatory trading suffer 2.21% lower style-adjusted returns. Stocks subject to anticipatory trading experience negative abnormal returns followed by reversals, indicating the price destabilizing effect of anticipatory trading.

Source: Review of Financial Studies

DOI: 10.1093/rfs/hhaf082

Authors: Vikas Agarwal, George O Aragon, Vikram Nanda, Kelsey Wei

Institutions: Georgia State University, Arizona State University, The University of Texas at Dallas

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4414900364

FWCI: 1.892

Cites: 46

Cited by: 3

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