The Rise and Fall of Portfolio Pumping Among U.S. Mutual Funds

We construct a new measure that tightens the link between stock return patterns around quarter-ends and the likelihood that these patterns result from mutual fund portfolio pumping. Both the level and the concentration of mutual fund ownership explain temporary stock price increases at the end of the quarter. We show that pumping is particularly pronounced among the best- and worst-performing funds and document a distinctive increase in this activity during the 1997–2001 period. The sharp decrease in portfolio pumping after 2001 is most likely due to academic and media attention that spawned investor activism and SEC enforcement actions. These changes in regulatory attention and scrutiny markedly affected the behavior of mutual fund managers. JEL Classifications: G23, G28, K22 Purchasing stocks already held for the purpose of driving up quarter-end portfolio values, a practice known as “portfolio pumping”, “marking the close”, “high closing”, “painting the tape ” or “leaning for the tape”, has attracted recent attention from regulators, consumer advocates, and the media, and is the focus of empirical studies (Carhart, Kaniel, Musto and Reed, 2002; Bernhardt and Davies, 2005) as well as theoretical modeling (Bhattacharyya and Nanda, 2006; Bernhardt