Price Support by Bank-Affiliated Mutual Funds
76 Pages Posted: 2 Aug 2010 Last revised: 23 Mar 2016
Date Written: May 1, 2014
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.
Keywords: Price support, conflict of interests, mutual funds, banks, secondary offerings
JEL Classification: G30, G23, G32, G28, G21, K22
Suggested Citation: Suggested Citation