Portfolio Pumping and Managerial Structure

Abstract

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 return inflation by team-managed funds is 45% lower than by single-managed funds at year-ends. Also, portfolio pumping decreases as team size increases. These results are 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 the SEC enforcement.

Keywords: Fund performance; Peer monitoring; Monetary incentives; Securities regulation

JEL Classification: D70, G23, K22