Price support by bank-affiliated mutual funds Articles uri icon

publication date

  • March 2015

start page

  • 614

end page

  • 638

issue

  • 3

volume

  • 115

International Standard Serial Number (ISSN)

  • 0304-405X

Electronic International Standard Serial Number (EISSN)

  • 1879-2774

abstract

  • Fund managers are double agents; they serve both fund investors and owners of management firms. This conflict of interest may result in trading to support securities prices. Tests of this hypothesis in the Spanish mutual fund industry indicate that bank-affiliated mutual funds systematically increase their holdings in the controlling bank stock around seasoned equity issues, at the time of bad news about the controlling bank, before anticipated price drops, and after non-anticipated price drops. The results seem mainly driven by bank managers' incentives. Ownership of asset management companies thus matters and can distort capital allocation and asset prices.

keywords

  • price support; conflict of interests; mutual funds; banks; secondary offerings