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Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization

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  • JOSÉ-MIGUEL GASPAR
  • MASSIMO MASSA
  • PEDRO MATOS
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    Abstract

    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. Copyright 2006 by The American Finance Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2006.00830.x
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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 61 (2006)
    Issue (Month): 1 (02)
    Pages: 73-104
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    Handle: RePEc:bla:jfinan:v:61:y:2006:i:1:p:73-104

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    Cited by:
    1. Jennifer Huang & Clemens Sialm & Hanjiang Zhang, 2011. "Risk Shifting and Mutual Fund Performance," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 24(8), pages 2575-2616.
    2. Clemens Sialm & T. Mandy Tham, 2011. "Spillover Effects in Mutual Fund Companies," NBER Working Papers 17292, National Bureau of Economic Research, Inc.
    3. Ludovic Phalippou, 2009. "Beware of Venturing into Private Equity," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 147-66, Winter.

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