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

Eisele, Alexander; Nefedova, Tamara; Parise, Gianpaolo

Eisele, Alexander; Nefedova, Tamara; Parise, Gianpaolo (2017), Are Star Funds Really Shining? Cross‐trading and Performance Shifting in Mutual Fund Families, 9th Annual Hedge Fund and Private Equity Research Conference, 2017-01, Paris, France

Type

Communication / Conférence

Date

2017

Conference title

9th Annual Hedge Fund and Private Equity Research Conference

Conference date

2017-01

Conference city

Paris

Conference country

France

Metadata

Show full item record

Author(s)

Eisele, Alexander
Nefedova, Tamara
Dauphine Recherches en Management [DRM]
Parise, Gianpaolo

Abstract (EN)

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.