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

Eisele, Alexander; Nefedova, Tamara; Parise, Gianpaolo; Peijnenburg, Kim

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

10.1016/j.jfineco.2018.12.005

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