Cross-Asset Information Synergy in Mutual Fund Families

Abstract

Despite the conventional wisdom that the equity and bond markets are segmented, the organizational structure of mutual fund families facilitates information integration between shareholders and creditors, and thus offsets frictions that cause cross-asset segmentation. We find that actively managed equity funds and corporate bond funds exhibit significant comovement in the investment decisions of commonly held firms' securities only when they are affiliated with the same family. This affiliation-induced comovement is caused by information spillovers across shareholders and creditors rather than non-information mechanisms. Synthesizing cross-asset information helps predict future equity returns, and thus creates profits for fund families as a whole. Our findings accentuate the importance of collaboration between equity and bond fund managers, which is understudied and not widely recognized by market participants.

Keywords: mutual fund families, equity fund, bond fund, information synergy

JEL Classification: G11, G20, G23, G31