Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families

63 Pages Posted: 18 Mar 2012 Last revised: 27 Feb 2019

See all articles by Alexander Eisele

Alexander Eisele

University of Lugano

Tamara Nefedova

Université Paris-Dauphine

Gianpaolo Parise

EDHEC

Kim Peijnenburg

Netspar; Centre for Economic Policy Research (CEPR); EDHEC Business School - Department of Economics & Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 24, 2019

Abstract

This paper explores the incentives for mutual funds to trade with sibling funds affiliated with the same group. To this end, we construct a dataset of almost one million equity transactions and compare the pricing of trades crossed internally (cross-trades) with that of twin trades executed with external counterparties. We find that cross-trades are used either to opportunistically reallocate performance among trading funds or to reduce transaction costs for both counterparties. The prevalent incentive depends on the intensity of internal monitoring and the market state. We discuss the implications for the literature on fund performance and the current regulatory debate.

Keywords: Mutual fund families, Cross-trades, Performance-shifting, Monitoring, Opaque trading

JEL Classification: G11, G23

Suggested Citation

Eisele, Alexander and Nefedova, Tamara and Parise, Gianpaolo and Peijnenburg, Kim, Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families (February 24, 2019). Journal of Financial Economics (JFE), Forthcoming; Swiss Finance Institute Research Paper No. 13-19. Available at SSRN: https://ssrn.com/abstract=2023976 or http://dx.doi.org/10.2139/ssrn.2023976

Alexander Eisele

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900
Switzerland

Tamara Nefedova

Université Paris-Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

HOME PAGE: http://www.tamaranefedova.com

Gianpaolo Parise (Contact Author)

EDHEC ( email )

393 Promenade des Anglais
Nice, 06200
France

Kim Peijnenburg

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

EDHEC Business School - Department of Economics & Finance ( email )

France

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