Window dressing in mutual funds

Vikas Agarwal, Gerald D. Gay and Leng Ling

CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: We provide a rationale for window dressing where investors respond to conflicting signals of managerial ability inferred from a fund's performance and disclosed portfolio holdings. We contend that window dressers take a risky bet on their performance during a reporting delay period, which affects investors' interpretation of the conflicting signals and hence their capital allocations. Conditional on good (bad) performance, window dressers benefit from higher (lower) investor flows as compared to non-window dressers. Window dressers also have poor past performance, possess little skill, and incur high portfolio turnover and trade costs, characteristics which in turn result in worse future performance.

Keywords: Mutual funds; Window dressing; Portfolio disclosure; Fund flows (search for similar items in EconPapers)
JEL-codes: G11 G20 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1107r3

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