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

Eisele, Alexander; Nefedova, Tamara; Parise, Gianpaolo; Peijnenburg, Kim (2018), Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families, Journal of Financial Economics. 10.1016/j.jfineco.2018.12.005

Type
Article accepté pour publication ou publié
Date
2018
Journal name
Journal of Financial Economics
Publisher
Elsevier
Publication identifier
Metadata
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Author(s)
Eisele, Alexander

Nefedova, Tamara
Dauphine Recherches en Management [DRM]
Parise, Gianpaolo
EDHEC Business School
Peijnenburg, Kim
Center for Economic Policy Research [CEPR]
Abstract (EN)
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.
Subjects / Keywords
Mutual fund families; Cross-trades; Performance-shifting; Monitoring; Opaque trading
JEL
G14 - Information and Market Efficiency; Event Studies; Insider Trading
G11 - Portfolio Choice; Investment Decisions
G23 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors