Price Support by Bank-Affiliated Mutual Funds
University of Notre Dame
Jose M. Marin
Universidad Carlos III de Madrid
May 1, 2014
AFA 2012 Chicago Meetings Paper
Journal of Financial Economics (JFE), Forthcoming
Fund managers are double agents; they serve both fund investors and owners of management firms. This conflict of interest may result in trading to support securities prices. Tests of this hypothesis in the Spanish mutual fund industry indicate that bank-affiliated mutual funds systematically increase their holdings in the controlling bank stock around seasoned equity issues, at the time of bad news about the controlling bank, before anticipated price drops, and after non-anticipated price drops. The results seem mainly driven by bank managers’ incentives. Ownership of asset management companies thus matters and can distort capital allocation and asset prices.
Number of Pages in PDF File: 76
Keywords: Price support, conflict of interests, mutual funds, banks, secondary offerings
JEL Classification: G30, G23, G32, G28, G21, K22
Date posted: August 2, 2010 ; Last revised: August 18, 2014
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