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Title:Window dressing in mutual funds
Authors:Agarwal, Vikas
Gay, Gerald D.
Ling, Leng
Issue Date:2011
Series/Report no.:CFR working paper 11-07
Abstract:This paper introduces two measures to investigate potential window-dressing behavior among mutual fund managers. We show that unskilled managers that perform poorly are more likely to window dress by strategically purchasing winner stocks and selling loser stocks near quarter ends. Further, funds with higher expense ratios and greater portfolio turnover are associated with more window dressing. We also find that funds involved in window dressing perform poorly in the following quarter. Given these adverse effects, we demonstrate how window dressing can exist in equilibrium. Current reporting requirements allow managers up to 60 days' delay to report end of quarter portfolio holdings. We show how window-dressing managers can benefit from incrementally higher fund flows if good performance is realized during the delay period. However, we find that poor performance results in incrementally lower flows than that observed for non-window dressing managers.
Subjects:Mutual funds
Window dressing
Portfolio disclosure
Fund flows
JEL:G11
G20
Is replaced by the following version:http://hdl.handle.net/10419/70128
Document Type:Working Paper
Appears in Collections:CFR Working Papers, Centre for Financial Research (CFR), Universität Köln

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