Short-Sale Constraints and the Pricing of Managerial Skills

65 Pages Posted: 7 Aug 2012 Last revised: 14 Aug 2015

See all articles by Si Cheng

Si Cheng

Syracuse University - Department of Finance

Massimo Massa

INSEAD - Finance

Hong Zhang

Singapore Management University - Lee Kong Chian School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2012

Abstract

We investigate the impact of the absence of short selling on the pricing of managerial skills in the mutual fund industry. In the presence of divergent opinions regarding managerial skills, fund managers can strategically use fees to attract only the most optimistic capital. The recognition of this fee strategy helps explain a set of stylized observations and puzzles in the mutual fund industry, including the underperformance of active funds, the existence of flow convexity, and the negative correlation between gross-of-fee α and fees.

Keywords: Managerial skills, mutual funds, short-sale constraint

JEL Classification: G1, G2, J0

Suggested Citation

Cheng, Si and Massa, Massimo and Zhang, Hong, Short-Sale Constraints and the Pricing of Managerial Skills (October 5, 2012). INSEAD Working Paper No. 2012/92/FIN, Available at SSRN: https://ssrn.com/abstract=2125586 or http://dx.doi.org/10.2139/ssrn.2125586

Si Cheng

Syracuse University - Department of Finance ( email )

Whitman School of Management
721 University Avenue
Syracuse, NY 13244
United States

HOME PAGE: http://si-cheng.net/

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
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France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Hong Zhang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 STAMFORD ROAD
Office 4087, Lee Kong Chian School of Bu
Singapore, 178899
Singapore

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