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Price support in the stock market

Author

Listed:
  • 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.

Suggested Citation

  • Benjamin Golez & José M. Marín, 2010. "Price support in the stock market," Working Papers 2010-16, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  • Handle: RePEc:imd:wpaper:wp2010-16
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Mola, Simona & Guidolin, Massimo, 2009. "Affiliated mutual funds and analyst optimism," Journal of Financial Economics, Elsevier, vol. 93(1), pages 108-137, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Chen, Fan & Sanger, Gary C. & Slovin, Myron B., 2013. "Asset sales in the mutual fund industry: Who gains?," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4834-4849.

    More about this item

    Keywords

    price support; conflict of interests; agency problem; mutual funds; asset management; fund families; banks; prosecution;

    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

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