Why Do Fund Families Release Underperforming Incubated Mutual Funds?

Document Type

Article

Publication Title

Financial Management

Publication Date

9-1-2016

Abstract

Although the average incubated mutual fund outperforms nonincubated funds by up to 3.41% annually, a large number of released funds underperform during incubation. We find that launching underperforming incubated mutual funds is associated with objectives that attract large inflows and lower relative risk. These findings are consistent with the use of incubation to maximize fee revenue through means other than the flow-to-performance relationship. We also find that underperforming incubated funds are incubated longer suggesting that families release funds opportunistically to take advantage of outperformance when it is observed.

Volume

45

Issue

3

First Page

507

Last Page

528

DOI

10.1111/fima.12103

ISSN

00463892

E-ISSN

1755053X

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