Portfolio Pumping in Mutual Fund Families

Abstract

I document portfolio pumping at the fund family level, a strategy that non-star fund managers buy stocks held by star funds in the family to inflate their performance at quarter-end. Star funds with high family pumping activities show strong evidence of inflated performance after 2002, when the Securities and Exchange Commission increased regulation on portfolio pumping at the fund level. Stocks pumped by the strategy show strong reversals at the last trading day of the quarter. Non-star fund managers pumping for star funds receive substantially higher flows in the future, which cannot be explained by fund characteristics.

Keywords: Mutual Funds, Portfolio Pumping, Family Strategy

JEL Classification: G18, G23, G28, K22