Affiliated Mutual Funds and the Allocation of Initial Public Offerings
Jay R. Ritter
University of Florida - Department of Finance, Insurance and Real Estate
University of South Carolina - Darla Moore School of Business
October 3, 2006
AFA 2006 Boston Meetings Paper
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
Date posted: April 24, 2005
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