Mutual Fund Incubation
Richard B. Evans
University of Virginia - Darden School of Business
March 21, 2009
Journal of Finance, Forthcoming
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 non-incubated funds by 3.5% risk-adjusted, and when they are opened to the public, they attract higher net dollar flows. Post-incubation, however, this outperformance disappears. This performance reversal imparts an upwards bias to returns that is not removed by a fund size filter. Fund age and ticker-creation-date filters, however, eliminate the bias.
Number of Pages in PDF File: 66
Keywords: Mutual fund incubation, investment management, bias in returns, fund flows, fund family
JEL Classification: G11, G20
Date posted: March 27, 2008 ; Last revised: August 18, 2009
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