The Mysterious Ways of Mutual Funds: Market Timing
Tamar Frankel & Lawrence Cunningham
Boston University School of Law Working Paper 06-39
Boston College Law School Legal Research Paper Series No. 111
Annual Review of Banking and Financial Law, Vol. 25, No. 1, 2006
Abstract
The term "market timing" was little known outside the arcane world of mutual funds until state attorneys general from across the country popularized it. The term's innocuous-sounding ring assumed a more pernicious note when the mysterious ways of mutual funds became more transparent. In its pernicious sense, market timing denominates mutual fund insiders using the inscrutable structures of mutual funds to provide benefits selectively to favored participants at the expense of less favored participants.
Mutual fund shares are not like common stocks; investments made using these vehicles are unlike those made through traditional securities markets. While the peculiar features of mutual funds were manifested in the contemporary environment, these peculiarities are inherent in the very structure of mutual funds. Regulatory efforts dating to the 1940s recognize these realities and regulatory reforms of the early 2000s struggle to respond in much the way earlier reforms did.
The wide range of reforms that have been adopted and proposed may overlook this reality, however. By correcting this oversight, and unveiling the historical and contemporary landscape, this Article provides more realistic appraisals for increasing the integrity of the mutual fund investment vehicle. Chief among these is a deeper point: critical to sustaining the mutual fund as an important institution in the financial system is a renewed appreciation of concepts of trust and professionalism.
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Suggested Citation:
Frankel, Tamar and Cunningham, Lawrence A., "The Mysterious Ways of Mutual Funds: Market Timing," Annual Review of Banking and Financial Law, Vol. 25, No. 1, 2006.
Tamar Frankel Contact Information
Boston University School of Law
765 Commonwealth Avenue
Boston, MA 02215
Email:
http://people.bu.edu/tfrankel/
Lawrence A. Cunningham Contact Information
Boston College Law School
885 Centre Street
Newton, MA 02459-1163
Phone: (617) 552-6373