The Rise and Fall of Portfolio Pumping Among U.S. Mutual Funds

45 Pages Posted: 17 Feb 2009 Last revised: 28 Jul 2016

Truong X. Duong

Iowa State University - Department of Accounting and Finance

Felix Meschke

University of Kansas - Finance Area

Date Written: July 26, 2016

Abstract

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.

Keywords: mutual funds, delegated portfolio management, portfolio pumping, regulation, Securities and Exchange Commission, SEC, Regulation NMS

JEL Classification: G18, G23, G28, K22

Suggested Citation

Duong, Truong X. and Meschke, Felix, The Rise and Fall of Portfolio Pumping Among U.S. Mutual Funds (July 26, 2016). Available at SSRN: https://ssrn.com/abstract=1344604 or http://dx.doi.org/10.2139/ssrn.1344604

Truong X. Duong

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Felix Meschke (Contact Author)

University of Kansas - Finance Area ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
(347) 433-5495 (Phone)

HOME PAGE: http://www.business.ku.edu/faculty/meschke-felix/

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