Are Star Funds Really Shining? Cross‐trading and Performance Shifting in Mutual Fund Families

Alexander Eisele, Tamara Nefedova and Gianpaolo Parise
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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

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Abstract: We employ transaction data to examine trades among funds affiliated to the same institution.We show that such cross-trades exhibit an average mispricing of 0.18% compared to openmarket trades. This deviation is greater during times of high financial uncertainty, when theexchanged stocks are illiquid and highly volatile, and when the asset manager has weakgovernance and large internal markets. We use an exogenous increase in regulatory scrutinyto establish causality. Our results are consistent with theoretical models of internal capitalmarkets in which the headquarters actively favors its "stars" at the expense of its leastvaluable units.

Date: 2017-01
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Published in 9th Annual Hedge Fund and Private Equity Research Conference, Jan 2017, Paris, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03985875

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