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Mutual Fund Incubation

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  • RICHARD B. EVANS

Abstract

Incubation is a strategy for initiating new funds, where multiple funds are started privately, and, at the end of an evaluation period, some are opened to the public. Consistent with incubation being used by fund families to increase performance and attract flows, funds in incubation outperform nonincubated funds by 3.5% risk‐adjusted, and when they are opened to the public they attract higher flows. Postincubation, however, this outperformance disappears. This performance reversal imparts an upward bias to returns that is not removed by a fund size filter. Fund age and ticker creation date filters, however, eliminate the bias.

Suggested Citation

  • Richard B. Evans, 2010. "Mutual Fund Incubation," Journal of Finance, American Finance Association, vol. 65(4), pages 1581-1611, August.
    • Handle: RePEc:bla:jfinan:v:65:y:2010:i:4:p:1581-1611
    DOI: 10.1111/j.1540-6261.2010.01579.x
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