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Portfolio Pumping
The illegal act of bidding up the value of a fund's
holdings right before the end of a quarter, when the
fund's performance is measured. This is done by
placing a large number of orders on existing holdings,
which drives up the value of the fund.
Also known as "marking the close".
Portfolio pumping can be highly destructive for
investors in the fund because it is a temporary gain
and the stocks will generally fall back to previous
levels once the price manipulation is over. For
example, if a fund has 1,000 shares of ABC purchased
for $10 per share, if the shares are trading at $9 right
before the managers?performance is measured, they
will have performed poorly. As a result, the managers
may resort to portfolio pumping and place enough
orders to bid the price to $14, dramatically increasing
the fund's performance. However, it is likely that
the shares will fall back towards $9, leaving investors
with a $9 stock that was made to look like a $14 stock.
The illegal act of bidding up the value of a fund's
holdings right before the end of a quarter, when the
fund's performance is measured. This is done by
placing a large number of orders on existing holdings,
which drives up the value of the fund.
Also known as "marking the close".
Portfolio pumping can be highly destructive for
investors in the fund because it is a temporary gain
and the stocks will generally fall back to previous
levels once the price manipulation is over. For
example, if a fund has 1,000 shares of ABC purchased
for $10 per share, if the shares are trading at $9 right
before the managers?performance is measured, they
will have performed poorly. As a result, the managers
may resort to portfolio pumping and place enough
orders to bid the price to $14, dramatically increasing
the fund's performance. However, it is likely that
the shares will fall back towards $9, leaving investors
with a $9 stock that was made to look like a $14 stock.