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Favoritism in Mutual Fund Families? Evidence on Strategic Cross‐Fund Subsidization
Author(s) -
GASPAR JOSÉMIGUEL,
MASSA MASSIMO,
MATOS PEDRO
Publication year - 2006
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2006.00830.x
Subject(s) - open end fund , closed end fund , fund of funds , business , fund administration , income fund , finance , sovereign wealth fund , feeder fund , net asset value , mutual fund , value (mathematics) , global assets under management , asset (computer security) , passive management , manager of managers fund , institutional investor , economics , microeconomics , corporate governance , incentive , computer security , machine learning , market liquidity , computer science
We investigate whether mutual fund families strategically transfer performance across member funds to favor those more likely to increase overall family profits. We find that “high family value” funds (i.e., high fees or high past performers) overperform at the expense of “low value” funds. Such a performance gap is above the one existing between similar funds not affiliated with the same family. Better allocations of underpriced initial public offering deals and opposite trades across member funds partly explain why high value funds overperform. Our findings highlight how the family organization prevalent in the mutual fund industry generates distortions in delegated asset management.