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Affiliated Mutual Funds and the Allocation of Initial Public Offerings


Jay R. Ritter


University of Florida - Department of Finance, Insurance and Real Estate

Donghang Zhang


University of South Carolina - Moore School of Business

October 3, 2006

AFA 2006 Boston Meetings Paper

Abstract:     
We examine how investment banks use initial public offerings (IPOs) in relation to their affiliated mutual funds. The dumping ground hypothesis predicts that the lead underwriter allocates cold IPOs to its affiliated funds so that more deals can be completed when demand for these IPOs is weak. Affiliated funds may also receive more cold IPOs because the lead underwriter uses allocations of hot IPOs to unaffiliated funds to gain trading commission business. The nepotism hypothesis predicts that the lead underwriter allocates hot IPOs to its affiliated funds to boost their performance and thus attract more money. We find little evidence supporting the dumping ground hypothesis, although there is some evidence supporting the nepotism hypothesis, especially during the internet bubble period of 1999-2000.

Number of Pages in PDF File: 47

Keywords: Initial public offerings, mutual funds, IPO allocations

JEL Classification: G24

working papers series





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Date posted: April 24, 2005  

Suggested Citation

Ritter, Jay R. and Zhang, Donghang, Affiliated Mutual Funds and the Allocation of Initial Public Offerings (October 3, 2006). AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=686479 or http://dx.doi.org/10.2139/ssrn.686479

Contact Information

Jay R. Ritter
University of Florida - Department of Finance, Insurance and Real Estate ( email )
P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)
HOME PAGE: http://bear.cba.ufl.edu/ritter
Donghang Zhang (Contact Author)
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
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