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

Author

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

Abstract

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.

Suggested Citation

  • Eisele, Alexander & Nefedova, Tamara & Parise, Gianpaolo & Peijnenburg, Kim, 2017. "Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families," CEPR Discussion Papers 12225, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12225
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    1. repec:eee:jbfina:v:89:y:2018:i:c:p:105-124 is not listed on IDEAS

    More about this item

    Keywords

    Cross-trades; Monitoring; Mutual fund families; Opaque trading; Performance-shifting;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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