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Price support in the stock market

Benjamin Golez () and Jose Marin ()
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Benjamin Golez: Universitat Pompeu Fabra

No 2010-16, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

Abstract: The interplay of delegated portfolio management and asset management ownership generates a double agency problem that may result on trading to support security prices. We test this hypothesis analyzing the trading patterns of mutual funds affiliated with banks with the stocks of their controlling banks. We show that affiliated mutual funds tend to increase the holdings of the parent bank stock following a large drop in the stock price of the bank. Further, we provide evidence that these patterns of trading are not consistent with portfolio rebalancing into the banking sector, contrarian trading or timing skills. We also provide evidence that the patterns of trading are not information-driven. This leads us to conclude that affiliated mutual funds follow this strategy to support the price of the parent bank.

Keywords: price support; conflict of interests; agency problem; mutual funds; asset management; fund families; banks; prosecution (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 G30 G32 K22 (search for similar items in EconPapers)
Date: 2010-08-02
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-mst
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