Leaning for the Tape: Evidence of Gaming Behavior in Equity Mutual Funds |
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| Authors: | Mark M Carhart Ron Kaniel David K Musto & Adam V Reed |
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| Institution: | Goldman Sachs Asset Management,;University of Texas,;University of Pennsylvania,;University of North Carolina |
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| Abstract: | We present evidence that fund managers inflate quarter-end portfolio prices with last-minute purchases of stocks already held. The magnitude of price inflation ranges from 0.5 percent per year for large-cap funds to well over 2 percent for small-cap funds. We find that the cross section of inflation matches the cross section of incentives from the flow/performance relation, that a surge of trading in the quarter's last minutes coincides with a surge in equity prices, and that the inflation is greatest for the stocks held by funds with the most incentive to inflate, controlling for the stocks' size and performance. |
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