Slow Moving Capital

Mark Mitchell, Lasse Pedersen and Todd Pulvino

No 12877, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G1 G12 G14 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-cfn
Note: AP
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Citations: View citations in EconPapers (180)

Published as Mark Mitchell & Lasse Heje Pedersen & Todd Pulvino, 2007. "Slow Moving Capital," American Economic Review, American Economic Association, vol. 97(2), pages 215-220, May.

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Journal Article: Slow Moving Capital (2007)
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