活动内容
Topic
Why Don't Most Mutual Funds Short Sell?
Speaker
Li An
Assistant
Professor, PBC School of Finance, Tsinghua University
Abstract
One of the most
puzzling observations of the US money management industry is that most equity
mutual funds do not short sell—despite the obvious benefits of short selling to
both fund investors and market efficiency. We shed light on this puzzle by
constructing a novel dataset of mutual funds’ long/short positions, cash
holdings, and capital flows from public SEC filings. Our analyses show that a)
long-short mutual funds hold substantially more cash than their traditional
long-only peers (30% vs. 5%); b) because of this cash dilution, long-short
mutual funds underperform their long-only peers, although their risky holdings
generate significant alpha (of 2-3% per annum). Moreover, c) long-short mutual
funds face substantially stronger flow-performance relations (and consequently
more volatile flows) and are much more prone to using cash holdings to absorb
capital flows. Building on these results, we propose a novel explanation for
the lack of growth of long-short mutual fund products, drawing on the coexistence
of sophisticated and unsophisticated retail investors.