Skip Navigation

This Article
Right arrow Full Text (PDF)
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Similar articles in ISI Web of Science
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrow Search for citing articles in:
ISI Web of Science (21)
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Zitzewitz, E.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

The Journal of Law, Economics, and Organization V19 I2
© 2003 Oxford University Press

Who Cares About Shareholders? Arbitrage-Proofing Mutual Funds

Eric Zitzewitz

Stanford Graduate School of Business

Abstract

As is becoming increasingly widely known, mutual funds often calculate their net asset values (NAVs) using stale prices, which causes their daily returns to be predictable. By trading on this predictability, investors can earn 35–70% per year in international funds and 10–25% in asset classes such as small-cap equity and high-yield and convertible bonds. These abnormal returns come at the expense of long-term shareholders, dilution of whom has grown in international funds from 56 basis points in 1998–99 to 114 basis points in 2001. Despite these losses and pressure from the Securities and Exchange Commission (SEC), the vast majority of funds are not market-updating their prices to eliminate NAV predictability and dilution, but are instead pursuing solutions that are only partly effective. The speed and efficacy of a fund's actions to protect shareholders from dilution is negatively correlated with its expense ratios and the share of insiders on its board, suggesting that agency problems may be the root cause of the arbitrage problem.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 REV FINANC STUDHome page
M. Kacperczyk, C. Sialm, and L. Zheng
Unobserved Actions of Mutual Funds
Rev. Financ. Stud., November 1, 2008; 21(6): 2379 - 2416.
[Abstract] [Full Text] [PDF]

Home page
 Review of FinanceHome page
H. Mamaysky, M. Spiegel, and H. Zhang
Improved Forecasting of Mutual Fund Alphas and Betas
Review of Finance, August 25, 2007; (2007) rfm018v1.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
G. J. Alexander, G. Cici, and S. Gibson
Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds
Rev. Financ. Stud., January 1, 2007; 20(1): 125 - 150.
[Abstract] [Full Text] [PDF]


Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.