Self-Interest on Mutual Fund Management: Evidence from the Portuguese Market
Institutional investors manage an increasingly substantial share of securities in the developed markets. Previous research has concluded that mutual funds’ clients do have asymmetric reactions, for they increase capital flows to mutual funds that are winners in performance, but fail to move away from performance losers. Such an asymmetric behavior gives the mutual fund manager the opportunity to optimize the fund’s own interests, not the participants’. In this paper we investigate self-interest on Portuguese equity mutual fund management. Our results show that, in Portugal, mutual funds tend to exhibit biased portfolios, i.e., financial assets of the group’s parent company outweigh other financial asset holdings. This cannot be explained by performance, risk or securities' characteristics, and is consistent with the hypothesis of the existence of self-interest on mutual fund management.
Institutional Investors, Agency Costs, Portfolio Choice, Government Policy and Regulation
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