Benchmark Backdating in Mutual Funds

28 Pages Posted: 11 Aug 2021

See all articles by Kevin Mullally

Kevin Mullally

University of Central Florida

Andrea Rossi

University of Arizona - Department of Finance

Date Written: July 15, 2021

Abstract

We analyze mutual fund benchmark changes using hand-collect SEC prospectuses. Under existing rules, funds can change their self-designated benchmark indices and compare their historical returns to those of the new benchmarks, that is, funds can potentially ``backdate'' their relative performance. We find that funds take advantage of this loophole in order to retroactively embellish their performance along several dimensions. Funds with low past performance and flows and less sophisticated clientele are more likely to engage in this behavior. Benchmark changing is associated with other deceptive behavior like portfolio pumping.

Keywords: Mutual Funds, Performance Evaluation, Benchmarks, Backdating

JEL Classification: G11, G14, G23, G53

Suggested Citation

Mullally, Kevin and Rossi, Andrea, Benchmark Backdating in Mutual Funds (July 15, 2021). Available at SSRN: https://ssrn.com/abstract=3887838 or http://dx.doi.org/10.2139/ssrn.3887838

Kevin Mullally

University of Central Florida ( email )

412 CBA
Orlando, FL 32827
United States
407-823-2360 (Phone)

Andrea Rossi (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
85
Abstract Views
235
rank
774,104
PlumX Metrics