Mutual Fund Flows and Cross‐Fund Learning within Families | Zendy

BROWN DAVID P. | Zendy; WU YOUCHANG | Zendy

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Mutual Fund Flows and Cross‐Fund Learning within Families

Author(s) -

BROWN DAVID P.,

WU YOUCHANG

Publication year - 2016

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/jofi.12263

Subject(s) - mutual fund , open end fund , fund administration , closed end fund , manager of managers fund , target date fund , income fund , spillover effect , econometrics , economics , investment fund , business , actuarial science , finance , microeconomics , institutional investor , corporate governance , market liquidity

We develop a model of performance evaluation and fund flows for mutual funds in a family. Family performance has two effects on a member fund's estimated skill and inflows: a positive common‐skill effect, and a negative correlated‐noise effect. The overall spillover can be either positive or negative, depending on the weight of common skill and correlation of noise in returns. Its absolute value increases with family size, and declines over time. The sensitivity of flows to a fund's own performance is affected accordingly. Empirical estimates of fund flow sensitivities show patterns consistent with rational cross‐fund learning within families.

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