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Mutual Fund Families and Performance EvaluationDavid P. BrownUniversity of Wisconsin - Madison - Department of Finance, Investment and Banking Youchang WuUniversity of Wisconsin - Madison - Department of Finance, Investment and Banking April 6, 2013 Abstract: We develop a model of performance evaluation and fund flows in the context of a mutual fund family. Family performance has two competing effects on the estimate of a member fund's alpha-generating skill and its inflows: a positive effect due to the family component of the skill, and a negative effect due to the correlation of unobservable noise in fund returns. The overall effect depends on the family age, the number of funds in the family, the role of the family in alpha generation, and the correlation of noise in fund returns. Empirical estimates of mutual fund flow sensitivities show patterns consistent with rational cross-fund learning within families.
Number of Pages in PDF File: 53 Keywords: Mutual Fund Family, Mutual Fund Flow, Performance Evaluation, Bayesian Learning JEL Classification: G23, G11 working papers seriesDate posted: October 11, 2010 ; Last revised: April 9, 2013Suggested CitationContact Information
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