41 Pages Posted: 18 Mar 2017
Date Written: March 15, 2017
We document the portfolio pumping at the fund family level. Managers of non-star funds buy stocks held by the star funds in the family to inflate portfolio values of the star funds at the quarter end after 2002, when the SEC started to pay attention to the portfolio pumping at the individual fund level. Fund families tend to mark up small stocks, which are easier to manipulate at the quarter end. Non-star fund managers who are active in pumping the portfolios of the star funds enjoy more future inflows. The monotonic relation between the future inflows and the activeness in the family level portfolio pumping is not due to investors' attention to the portfolio holdings of the star funds, but is more likely to be explained by the redirection of flows to the family to compensate the pumping managers. The evidence of the family level portfolio pumping is the strongest in the fourth quarter of the calendar year, when the mutual fund families have the greatest incentives to pump the portfolios of the star funds.
Keywords: Mutual Funds, Portfolio Pumping, Family Strategy
JEL Classification: G18, G23, G28, K22
Suggested Citation: Suggested Citation