Title

Window dressing in mutual funds

Document Type

Article

Publication Date

1-1-2014

Publication Title

Review of Financial Studies

Abstract

We provide a rationale for window dressing wherein investors respond to conflicting signals of managerial ability inferred from a fund's performance and disclosed portfolio holdings. We contend that window dressers make a risky bet on their performance during a reporting delay period, which affects investors' interpretation of the conflicting signals and hence their capital allocations. Conditional on good (bad) performance, window dressers benefit (suffer) from higher (lower) investor flows compared with non-window dressers. Window dressers also show poor past performance, possess little skill, and incur high portfolio turnover and trade costs, characteristics which in turn result in worse future performance.

Volume Number

27

Issue Number

11

First Page

3133

Comments

© 2014 The Author.

State

published

Last Page

3170

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