Trading Out of Sight

Download or read book Trading Out of Sight written by Alexander Eisele and published by . This book was released on 2017 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.