Self-Interest on Mutual Fund Management: Evidence From the Portuguese Market

Abstract

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 go away from performance losers. Such asymmetric reaction gives the mutual fund manager the opportunity to make portfolio decisions so as to optimize its own interests. In this paper we investigate evidence of self-interest of Portuguese equity mutual funds. Results of our investigation show that, in Portugal, mutual funds tend to exhibit biased portfolios, ie, financial assets of the own group outweigh other financial asset holdings. This cannot be explained by performance, risk or securities' characteristics.