Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families

Alexander Eisele, Tamara Nefedova, Gianpaolo Parise and Kim Peijnenburg
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Tamara Nefedova: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Gianpaolo Parise: EDHEC Business School - Département Comptabilité, Droit, Finance et Economie

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Abstract: This paper explores the incentives for mutual funds to trade with sibling funds affiliated with the same group. To this end, we construct a dataset of almost one million equity transactions and compare the pricing of trades crossed internally (cross-trades) with that of twin trades executed with external counterparties. We find that cross-trades are used either to opportunistically reallocate performance among trading funds or to reduce transaction costs for both counterparties. The prevalent incentive depends on the intensity of internal monitoring and the market state. We discuss the implications for the literature on fund performance and the current regulatory debate.

Keywords: Mutual fund families; Cross-trades; Performance-shifting; Monitoring; Opaque trading (search for similar items in EconPapers)
Date: 2018
Note: View the original document on HAL open archive server: https://hal.science/hal-02279289v1
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Published in Journal of Financial Economics, 2018, ⟨10.1016/j.jfineco.2018.12.005⟩

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Related works:
Journal Article: Trading out of sight: An analysis of cross-trading in mutual fund families (2020)
Working Paper: Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families (2017)
Working Paper: Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02279289

DOI: 10.1016/j.jfineco.2018.12.005

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