Predation versus Cooperation in Mutual Fund Families

36 Pages Posted: 12 Jun 2012 Last revised: 14 Jan 2020

See all articles by Alexander Eisele

Alexander Eisele

University of Lugano

Tamara Nefedova

Université Paris Dauphine - PSL

Gianpaolo Parise

EDHEC Business School and CEPR

Date Written: May 28, 2014

Abstract

In this paper, we investigate how mutual funds react to the distress of another fund in the same fund family. We test three alternative hypotheses: (1) funds help the distressed fund, (2) funds front-run the distressed fund improving their relative performance in the fund family and, (3) the family coordinates and benefits from frontrunning the distressed fund. Our results suggest that fund managers front-run their distressed siblings and that this is the outcome of a coordinated strategy. First, we find that funds in the same family exhibit higher risk-adjusted returns when one of the funds in the family is in distress. Second, distressed funds have lower returns for a given outflow when they have a high portfolio overlap with their siblings. Third, consistent with a coordinated strategy on the family level we find that the higher risk-adjusted returns are clustered among the most important funds of the family.

Keywords: mutual fund families, front-running, distress, fire sales

JEL Classification: G11, G14, G23

Suggested Citation

Eisele, Alexander and Nefedova, Tamara and Parise, Gianpaolo, Predation versus Cooperation in Mutual Fund Families (May 28, 2014). Available at SSRN: https://ssrn.com/abstract=2082369 or http://dx.doi.org/10.2139/ssrn.2082369

Alexander Eisele

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, TN Ticino 6900
Switzerland

Tamara Nefedova (Contact Author)

Université Paris Dauphine - PSL ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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

Gianpaolo Parise

EDHEC Business School and CEPR ( email )

393 Promenade des Anglais
Nice, 06200
France

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