Cross trading by investment advisers

Implications for mutual fund performance

Lorenzo Casavecchia, Ashish Tiwari*

*Corresponding author for this work

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

Using a unique dataset we provide new evidence on the significant penalty on client fund performance due to conflicts of interest related to the cross trading (TCT) activities of mutual fund advisers: funds managed by advisers in the top TCT quintile significantly underperform funds managed by advisers in the bottom TCT quintile by 1% per year. Adviser incentives to engage in cross trading are directly related to their opportunities for generating revenues from affiliated trading operations. Additional tests suggest that the significantly higher trading commissions paid by client funds of high-TCT advisers are a major source of their under-performance.

Original languageEnglish
Pages (from-to)99-130
Number of pages32
JournalJournal of Financial Intermediation
Volume25
DOIs
Publication statusPublished - 1 Jan 2016
Externally publishedYes

Keywords

  • Mutual fund performance
  • Cross trading
  • Investment advisers
  • Brokerage commissions
  • Adviser governance

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  • Prizes

    London School of Economics - Paul Woolley Centre Honorarium Award

    Lorenzo Casavecchia (Recipient), 2009

    Prize: Honorary award

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