EconPapers    
Economics at your fingertips  
 

Who Cares About Shareholders? Arbitrage-Proofing Mutual Funds

Eric Zitzewitz ()

Journal of Law, Economics, and Organization, 2003, vol. 19, issue 2, 245-280

Abstract: As is becoming increasingly widely known, mutual funds often calculate their net asset values (NAVs) using stale prices, which causes their daily returns to be predictable. By trading on this predictability, investors can earn 35--70% per year in international funds and 10--25% in asset classes such as small-cap equity and high-yield and convertible bonds. These abnormal returns come at the expense of long-term shareholders, dilution of whom has grown in international funds from 56 basis points in 1998--99 to 114 basis points in 2001. Despite these losses and pressure from the Securities and Exchange Commission (SEC), the vast majority of funds are not market-updating their prices to eliminate NAV predictability and dilution, but are instead pursuing solutions that are only partly effective. The speed and efficacy of a fund's actions to protect shareholders from dilution is negatively correlated with its expense ratios and the share of insiders on its board, suggesting that agency problems may be the root cause of the arbitrage problem. Copyright 2003, Oxford University Press.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (38) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Who Cares About Shareholders? Arbitrage-Proofing Mutual Funds (2002) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:19:y:2003:i:2:p:245-280

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

Journal of Law, Economics, and Organization is currently edited by Pablo T. Spiller

More articles in Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2020-05-05
Handle: RePEc:oup:jleorg:v:19:y:2003:i:2:p:245-280