This paper investigates the anomaly trading behavior of a sample of mutual funds mimicking hedge fund strategies, namely alternative mutual funds (AMFs), based on both of their long and short equity positions. We document that AMFs trade on anomalies by buying underpriced stocks and short-selling overpriced peers. While AMFs’ buys and sells based on their long positions do not generate superior performance, their short-selling and covering activity based on their short positions significantly negatively predicts future abnormal returns. However, this predictability is mainly attributed to size and the nine anomaly characteristics considered. Overall, the results suggest that AMFs are sophisticated investors and that their short positions are more informative relative to their long positions.
Gao, X., & Wang, Y. (2019). Do institutional investors exploit market anomalies? New evidence from alternative mutual funds. Southern Finance Association Annual Meeting, Orlando, FL.