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Reputation stretching in mutual fund starts

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  • Chen, Hsuan-Chi
  • Lai, Christine W.
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    Abstract

    This study examines the role of reputation stretching in the context of mutual funds. We show that the reputation stretching strategy increases net fund inflows to new funds run by well-performing fund managers and yields a net increase of fund inflows to fund families. Reputable fund managers exhibit one-year performance persistence for managing new funds, which can help investors assess managers when selecting funds. We also find that the decrease in information asymmetry associated with managerial reputation benefits investors by leading to an increase in new fund returns in the short run, compared to those of new funds run by managers without track records. Overall, the reputation stretching strategy benefits both investors, by reducing information asymmetry and improving investment returns, and fund families, by increasing net fund inflows to new equity funds.

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    File URL: http://www.sciencedirect.com/science/article/B6VCY-4WTRS9J-1/2/766cbcc238be157eaf694cf1cb7be367
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 1 (January)
    Pages: 193-207

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:1:p:193-207

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Mutual fund Fund family Reputation stretching;

    References

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    1. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
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    Cited by:
    1. Carmen Pilar Martí Ballester, 2014. "Determinants of equity pension plan flows," Estudios de Economia, University of Chile, Department of Economics, vol. 41(1 Year 20), pages 125-148, June.
    2. Agarwal, Vikas & Ma, Linlin, 2013. "Managerial multitasking in the mutual fund industry," CFR Working Papers 13-10, University of Cologne, Centre for Financial Research (CFR).
    3. Kolokolova, Olga, 2011. "Strategic behavior within families of hedge funds," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1645-1662, July.

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