Cross Trading by Investment Advisers: Implications for Mutual Fund Performance

54 Pages Posted: 7 Feb 2013 Last revised: 12 Aug 2015

See all articles by Lorenzo Casavecchia

Lorenzo Casavecchia

University of Technology Sydney

Ashish Tiwari

University of Iowa

Date Written: June 15, 2015

Abstract

Using a unique dataset we provide new evidence on the significant penalty on client fund performance due to conflicts of interest related to the cross trading (TCT) activities of mutual fund advisers: funds managed by advisers in the top TCT quintile significantly underperform funds managed by advisers in the bottom TCT quintile by 1% per year. Adviser incentives to engage in cross trading are directly related to their opportunities for generating revenues from affiliated trading operations. Additional tests suggest that the significantly higher trading commissions paid by client funds of high-TCT advisers are a major source of their under-performance.

Keywords: Mutual fund performance, Cross trading, Investment advisers, Brokerage Commissions, Adviser governance

JEL Classification: G23

Suggested Citation

Casavecchia, Lorenzo and Tiwari, Ashish, Cross Trading by Investment Advisers: Implications for Mutual Fund Performance (June 15, 2015). Journal of Financial Intermediation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2022808 or http://dx.doi.org/10.2139/ssrn.2022808

Lorenzo Casavecchia

University of Technology Sydney ( email )

8 Ultimo Rd
Sydney, NSW 2007
Australia

Ashish Tiwari (Contact Author)

University of Iowa ( email )

Finance Department
Henry B. Tippie College of Business, 108 PBB
Iowa City, IA 52242
United States
(319) 353-2185 (Phone)
(319) 335-3690 (Fax)

HOME PAGE: https://tippie.uiowa.edu/people/ashish-tiwari

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