Better than the Original? The Relative Success of Copycat Funds

Marno Verbeek, Y (Yu) Wang

Research output: Contribution to journalArticleAcademicpeer-review

26 Citations (Scopus)

Abstract

We construct hypothetical copycat funds to investigate the performance of free-riding strategies that duplicate the disclosed asset holdings of actively managed mutual funds. On average, copycat funds are able to marginally outperform their target mutual funds, but their relative success has increased after 2004, when SEC regulation imposed all mutual funds to quarterly disclose their holdings. We find a substantial cross-sectional dispersion in the relative performance of copycat funds. Free-riding on the portfolios disclosed by past winning funds and the funds that disclose representative holdings generates significantly better performance net of trading costs and expenses than the vast majority of mutual funds. The results indicate that free-riding on disclosed fund holdings is an attractive strategy and suggest that mutual funds can suffer from information disclosure requirements.
Original languageEnglish
Pages (from-to)3454-3471
Number of pages18
JournalJournal of Banking and Finance
Volume37
Issue number9
DOIs
Publication statusPublished - 9 Jul 2013

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