Abstract

http://ssrn.com/abstract=2022503
 
 

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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

Michael Yates


University of Texas at Austin - McCombs School of Busiiness

February 2, 2014


Abstract:     
We analyze individuals' mutual fund holdings and trades to examine the effect of mutual fund family reputation on individuals' mutual fund investment decisions. Though our sample investors are purchasing funds through a discount brokerage firm, we find that individuals cluster their investments within particular families. We show investors are significantly more likely to purchase funds from families with which they have previous experience, and this effect is greater if the previously experienced return was positive. Using evidence from fund redemptions, we also show that individuals' beliefs about funds belonging to more reputable families appear to change slowly. Finally, we document that investors’ portfolios have higher returns (both raw and risk-adjusted) after family purchases even after considering the increased correlation of funds within the same family complex. Our results are robust to alternative explanations such as inertia, loyalty, style preference, or heterogeneous search costs.

Number of Pages in PDF File: 49

Keywords: individual investor portfolio choice, mutual fund families, reputation

JEL Classification: L01, D83, G11, D14

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Date posted: March 15, 2012 ; Last revised: February 3, 2014

Suggested Citation

Gerken, William Christopher and Starks, Laura T. and Yates, Michael, The Importance of Family: The Role of Mutual Fund Family Reputation in Investment Decisions (February 2, 2014). Available at SSRN: http://ssrn.com/abstract=2022503 or http://dx.doi.org/10.2139/ssrn.2022503

Contact Information

William Christopher Gerken (Contact Author)
University of Kentucky - Finance ( email )
College of Business & Economics
Lexington, KY 40506-0034
United States
Laura T. Starks
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)
Michael Yates
University of Texas at Austin - McCombs School of Busiiness ( email )
Austin, TX 78712
United States
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