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Better than the Original? The Relative Success of Copycat Funds

49 Pages Posted: 10 Mar 2010 Last revised: 3 Nov 2010

Marno Verbeek

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar

Yu Wang

IMC Financial Markets & Asset Management; Erasmus University - Rotterdam School of Management

Date Written: November 2, 2010

Abstract

We construct hypothetical copycat funds to investigate the performance of free-riding strategies that duplicate the disclosed asset holdings of actively managed mutual funds. On average, copycat funds are able to marginally outperform their target mutual funds, but their relative success has increased after 2004, when SEC regulation imposed all mutual funds to quarterly disclose their holdings. We find a substantial cross-sectional dispersion in the relative performance of copycat funds. Free-riding on the portfolios disclosed by past winning funds and the funds that disclose representative holdings generates significantly better performance net of trading costs and expenses than the vast majority of mutual funds. The results indicate that free-riding on disclosed fund holdings is an attractive strategy and suggest that mutual funds can suffer from information disclosure requirements.

Keywords: Mutual Funds, Portfolio Disclosure, Copycat Funds, Relative Performance, SEC

JEL Classification: G11, G23, G28

Suggested Citation

Verbeek, Marno and Wang, Yu, Better than the Original? The Relative Success of Copycat Funds (November 2, 2010). Available at SSRN: https://ssrn.com/abstract=1566794 or http://dx.doi.org/10.2139/ssrn.1566794

Marno Verbeek

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)

HOME PAGE: http://www.rsm.nl/mverbeek

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Yu Wang (Contact Author)

IMC Financial Markets & Asset Management ( email )

Strawinskylaan 377, WTC D-tower
Amsterdam, 1077 XX
Netherlands

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T08-35
3000 DR Rotterdam
Netherlands

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