Portfolio Pumping and Managerial Structure
51 Pages Posted: 19 Sep 2012 Last revised: 31 Mar 2018
Date Written: February 8, 2018
Using U.S. equity mutual fund data, we show that portfolio pumping – an illegal trading activity that artificially inflates year-end and quarter-end portfolio returns – is more pronounced among single-managed than team-managed funds. The magnitude of return inflation by team-managed funds is 45% lower compared to single-managed funds at year-ends. In addition, portfolio pumping decreases as team size increases. These results are mainly driven by peer effects among teams and, in some cases, amplified by less convex flows – performance relation in team-managed funds. Our findings are robust to differences in fund governance, manager career concerns, local networks, fund-family policies, and regulation changes.
Keywords: Fund performance; Peer monitoring; Monetary incentives; Securities regulation
JEL Classification: D70, G23, K22
Suggested Citation: Suggested Citation