Abstract
Mutual funds whose share prices are not calculated with enough precision face the danger of opportunistic trading. This fact is documented empirically with respect to the Government Securities Investment Fund (G Fund), a part of the defined contribution plan run by the US federal government for its employees. The results are important both for policymakers and for mutual fund management.
Notes
1 The legislative language, enacted in 1986, is contained in 5USC§8438(e)(2). The TSP has the authority to choose any maturity (the rate is the same) but has always chosen a next-business-day maturity to eliminate duration risk.
2 The public debt figures will include not only direct holdings of the G Fund but also indirect holdings of the G Fund by life cycle fund investors. While opportunistic trading will occur mostly among direct G Fund holders, any losses will be spread across all G Fund holders. The public debt figures therefore are more appropriate than direct G Fund figures.