The Rise and Fall of Portfolio Pumping Among U.S. Mutual Funds
Truong X. Duong
Iowa State University - Department of Accounting and Finance
University of Kansas - Finance Area
Fund managers have incentives to inflate their quarterly performance by aggressively buying stocks they already own. Using intraday measures of pumping we document that sharply increased regulatory attention in late 2000 and improved market liquidity following the implementation of Regulation NMS in 2007 are associated with fewer last-minute purchases by institutions, lower price spikes in mutual fund NAVs, and a weakened link between fund holdings and stock return reversals at period ends. Our findings suggest that portfolio pumping among U.S. mutual funds was widespread until regulatory scrutiny and heightened competition drastically diminished its prevalence.
Number of Pages in PDF File: 41
Keywords: mutual funds, delegated portfolio management, portfolio pumping, regulation, Securities and Exchange Commission, SEC, Regulation NMS
JEL Classification: G18, G23, G28, K22
Date posted: February 17, 2009 ; Last revised: August 19, 2015
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