What is in a Name? Mutual Fund Flows When Managers Have Foreign Sounding Names

Abstract:     
This paper shows that stereotypes associated with a person's name affect the investment choices of U.S. mutual fund investors. Compared to managers with typical American names, fund managers with foreign-sounding names have lower fund flows, even though there are no significant differences in their investment style and performance. These managers also experience lower appreciation in flows following good performance and greater decline in flows following poor performance. The flow effects are stronger for funds that have more conservative investor clienteles or are located in regions where racial/ethnic stereotypes are more pronounced. Further, following the 9/11 terrorist attacks, fund managers with Middle-Eastern and South-Asian names experience a drop in fund flows relative to other managers with foreign-sounding names. Even in an experimental setting where managerial skill differences do not exist, individuals allocate 14% less money to an index fund managed by an individual with foreign-sounding name. Our rough calculations indicate that lower fund flows can reduce the annual compensation of managers with foreign-sounding names by over hundred thousand dollars. Collectively, our results provide evidence of taste-based discrimination and show that social biases affect capital allocations even in one of the largest and most liquid capital market segments.

Number of Pages in PDF File: 68

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