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

Listed author(s):
  • Eisele, Alexander
  • Nefedova, Tamara
  • Parise, Gianpaolo
  • Peijnenburg, Kim
Registered author(s):

    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.

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    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12225
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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 12225.

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    Date of creation: Aug 2017
    Handle: RePEc:cpr:ceprdp:12225
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