VGSF - WU Vienna - LC

Joël Peress, INSEAD

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Joël Peress from IN­SEAD to present his re­search pa­per.
Per­sonal Webpage

Pa­per

Slow Ar­bit­rage: Fund Flows and Mis­pri­cing in the Fre­quency Do­main

We con­duct a spec­tral ana­lysis of the re­la­tion between cap­ital flows and mis­pri­cing. Hedge funds and mu­tual funds both be­have as low-­pass fil­ters, de­ploy­ing high-­fre­quency flows to­wards low­fre­quency mis­pri­cing. But hedge funds at­ten­u­ate high-­fre­quency flows more than mu­tual funds do, thus im­prov­ing mar­ket ef­fi­ciency 2 to 7 times more slowly than mu­tual funds worsen it. Timeser­ies and cross-sec­tional tests in­dic­ate that risk, lim­ited ac­cess to cap­ital, and im­ple­ment­a­tion costs are the reas­ons hedge funds be­have as low-­pass fil­ters. Our res­ults high­light the dif­fer­en­tial ef­fect of ar­bit­rage cap­ital on mar­ket ef­fi­ciency across fre­quen­cies.



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