Mismarking Fraud in Mutual Funds

75 Pages Posted: 13 Jun 2019 Last revised: 12 Jul 2019

See all articles by Vladimir A. Atanasov

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business

John J. Merrick, Jr.

Raymond A. Mason School of Business - William & Mary

Philipp Schuster

Karlsruhe Institute of Technology (KIT), Institute of Finance, Banking, and Insurance

Date Written: July 11, 2019

Abstract

We study potential fraudulent net asset value (NAV) and return inflation in mutual funds that invest in structured products. We design a filter to identify funds that likely mismark odd lot and two classes of round lot structured products. Applied to structured product-oriented funds launched after January 2010, our filter identifies 12 highly questionable funds managing $75 billion. The performance of these funds matches closely the predicted pattern of mismarking: extremely high alpha and skewness, particularly immediately after launch. We show that structured-product mismarking can seriously inflate return-since-inception metrics and cause material losses to later investor cohorts.

Keywords: mutual fund performance, structured products, odd lot, mismarking

JEL Classification: G21, G23, M41

Suggested Citation

Atanasov, Vladimir A. and Merrick, Jr., John J. and Schuster, Philipp, Mismarking Fraud in Mutual Funds (July 11, 2019). Available at SSRN: https://ssrn.com/abstract=3395430 or http://dx.doi.org/10.2139/ssrn.3395430

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

John J. Merrick, Jr. (Contact Author)

Raymond A. Mason School of Business - William & Mary ( email )

Williamsburg, VA 23187
United States
757-221-2721 (Phone)

HOME PAGE: http://https://mason.wm.edu/faculty/directory/full-time-faculty/merrick_j.php

Philipp Schuster

Karlsruhe Institute of Technology (KIT), Institute of Finance, Banking, and Insurance ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany
+49 721 608 48184 (Phone)
+49 721 608 48190 (Fax)

HOME PAGE: http://derivate.fbv.kit.edu

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