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Price support in the stock market

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Author Info

  • Benjamin Golez

    ()
    (Universitat Pompeu Fabra)

  • José M. Marín

    ()
    (IMDEA Social Sciences Institute)

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.

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Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2010-16.

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Date of creation: 02 Aug 2010
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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;

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  1. Jacques Olivier & José M. Marin, 2006. "The Dog That Did Not Bark: Insider Trading and Crashes," Working Papers 241, Barcelona Graduate School of Economics.
  2. Mola, Simona & Guidolin, Massimo, 2009. "Affiliated mutual funds and analyst optimism," Journal of Financial Economics, Elsevier, vol. 93(1), pages 108-137, July.
  3. 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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