Conflicts of interest in multi-fund management

Gerald Abdesaken ()
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Gerald Abdesaken: West Chester University of Pennsylvania College of Business and Public Affairs

Journal of Asset Management, 2019, vol. 20, issue 1, No 5, 54-71

Abstract: Abstract The simultaneous management of multiple mutual funds can create distortions in the delegated asset management industry misaligned with the interests of investors and regulators. At the core of this study is the finding that multi-fund managers cross-subsidize top performing funds at the expense of low performing funds. I find that the degree in which a fund manager engages in cross-trading or opposite trading with other funds that he/she manages has a strong positive relationship with abnormal returns for high return funds and a strong negative relationship with abnormal returns for low return funds. Moreover, multi-fund managers promote high year-to-date return funds without sacrificing the performance of low year-to-date funds. A sensitivity analysis focusing on opposite trading behavior between single-fund managers is inconsistent with cross-fund subsidization, calling attention to cross-trading or opposite trading as a cross-fund subsidization mechanism for managers with multiple funds.

Keywords: Cross-fund subsidization; Cross-trading; Price support (search for similar items in EconPapers)
JEL-codes: G11 G23 G30 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1057/s41260-018-00104-2

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