The Importance of Family: The Role of Mutual Fund Family Reputation in Investment Decisions
William Christopher Gerken
University of Kentucky - Finance
Laura T. Starks
University of Texas at Austin - Department of Finance
University of Texas at Austin - McCombs School of Busiiness
December 20, 2014
Based on theory, we hypothesize that fund family reputation affects individuals' mutual fund investment decisions and performance. In empirical tests of individual investor trades, we find supportive evidence of the hypothesis. Investors are significantly more likely to purchase funds from families with which they have previous experience, and particularly so if the previously experienced return was positive. Further consistent with theory, individuals' beliefs about more reputable families appear to change slowly. Moreover, the reputation effect appears to have positive outcomes - investors earn higher returns and risk-adjusted performance after reputation-based purchases even after controlling for investor ability and within-family correlation.
Number of Pages in PDF File: 51
Keywords: individual investor portfolio choice, mutual fund families, reputation
JEL Classification: L01, D83, G11, D14
Date posted: March 15, 2012 ; Last revised: January 15, 2015
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