Citation

Discussion Paper Details

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Title: Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families

Author(s): Alexander Eisele, Tamara Nefedova, Gianpaolo Parise and Kim Peijnenburg

Publication Date: August 2017

Keyword(s): Cross-trades, Monitoring, Mutual fund families, Opaque trading and Performance-shifting

Programme Area(s): Financial Economics

Abstract: This paper explores the incentives for mutual funds to trade with sibling funds affiliated with the same group. To this end, we construct a dataset of almost one million equity transactions and compare the pricing of trades crossed internally (cross-trades) with that of twin trades executed with external counterparties. We find that cross-trades are used either to opportunistically reallocate performance among trading funds or to reduce transaction costs for both counterparties. The prevalent incentive depends on the intensity of internal monitoring and the market state. We discuss the implications for the literature on fund performance and the current regulatory debate.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12225

Bibliographic Reference

Eisele, A, Nefedova, T, Parise, G and Peijnenburg, K. 2017. 'Trading Out of Sight: An Analysis of Cross-Trading in Mutual Fund Families'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12225