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Does mutual fund ownership reduce stock price clustering? Evidence from active and index funds

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  • Ahmed S. Baig

    (Boise State University)

  • Benjamin M. Blau

    (Utah State University)

  • R. Jared DeLisle

    (Utah State University)

Abstract

The literature is rich with examples of price clustering in financial markets. This study focuses on the relation between mutual fund ownership (both active and passive) and stock price clustering. To the extent that mutual funds are sophisticated investors, we posit that their trades are associated with lower levels of price clustering. We find support for this hypothesis as total, active, and passive mutual fund ownership are negatively related to the degree of price clustering. Surprisingly, price clustering’s association to passive (e.g. index) mutual fund ownership is an order of magnitude greater than to active ownership.

Suggested Citation

  • Ahmed S. Baig & Benjamin M. Blau & R. Jared DeLisle, 2022. "Does mutual fund ownership reduce stock price clustering? Evidence from active and index funds," Review of Quantitative Finance and Accounting, Springer, vol. 58(2), pages 615-647, February.
    • Handle: RePEc:kap:rqfnac:v:58:y:2022:i:2:d:10.1007_s11156-021-01004-0
    DOI: 10.1007/s11156-021-01004-0
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    Cited by:

    1. Baig, Ahmed & DeLisle, R. Jared & Zaynutdinova, Gulnara R., 2022. "Index mutual fund ownership and financial reporting quality," Research in International Business and Finance, Elsevier, vol. 62(C).
    2. Baig, Ahmed & Butt, Hassan Anjum & Fitwi, Abrar & Smith, Joey, 2021. "Does Innovation Explain the Skewness of Stock Returns?," American Business Review, Pompea College of Business, University of New Haven, vol. 24(2), pages 12-31, November.

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    More about this item

    Keywords

    Price clustering; Round prices; Mutual funds; Passive ownership; Active ownership;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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