Price support in the stock market
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.Download Info
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Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2010-16.Length:
Date of creation: 02 Aug 2010
Date of revision:
Handle: RePEc:imd:wpaper:wp2010-16
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Keywords: price support; conflict of interests; agency problem; mutual funds; asset management; fund families; banks; prosecution;Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-06 (All new papers)
- NEP-BAN-2010-08-06 (Banking)
- NEP-FMK-2010-08-06 (Financial Markets)
- NEP-MST-2010-08-06 (Market Microstructure)
References
References listed on IDEASPlease report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Simona Mola & Massimo Guidolin, 2007.
"Affiliated mutual funds and analyst optimism,"
Working Papers
2007-017, Federal Reserve Bank of St. Louis.
- Mola, Simona & Guidolin, Massimo, 2009. "Affiliated mutual funds and analyst optimism," Journal of Financial Economics, Elsevier, vol. 93(1), pages 108-137, July.
- José M. Marín & Jacques Olivier, 2006.
"The dog that did not bark: Insider trading and crashes,"
Economics Working Papers
948, Department of Economics and Business, Universitat Pompeu Fabra.
- Jose M. Marin & Jacques P. Olivier, 2008. "The Dog That Did Not Bark: Insider Trading and Crashes," Journal of Finance, American Finance Association, vol. 63(5), pages 2429-2476, October.
- Jacques Olivier & José M. Marin, 2006. "The Dog That Did Not Bark: Insider Trading and Crashes," Working Papers 241, Barcelona Graduate School of Economics.
- José M. Marín & Jacques Olivier, 2007. "The dog that did not bark: Insider trading and crashes," Working Papers 2007-20, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
- Marín Vigueras, José Maria & Olivier, Jacques, 2007. "The Dog that Did Not Bark: Insider Trading and Crashes," CEPR Discussion Papers 6244, C.E.P.R. Discussion Papers.
- Ritter, Jay R. & Zhang, Donghang, 2007. "Affiliated mutual funds and the allocation of initial public offerings," Journal of Financial Economics, Elsevier, vol. 86(2), pages 337-368, November.
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