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Mutual Fund Incubation

Richard B. Evans

University of Virginia - Darden School of Business

March 21, 2009

Journal of Finance, Forthcoming

Incubation is a strategy for initiating new funds, where multiple funds are started privately, and, at the end of an evaluation period, some are opened to the public. Consistent with incubation being used by fund families to increase performance and attract flows, funds in incubation outperform non-incubated funds by 3.5% risk-adjusted, and when they are opened to the public, they attract higher net dollar flows. Post-incubation, however, this outperformance disappears. This performance reversal imparts an upwards bias to returns that is not removed by a fund size filter. Fund age and ticker-creation-date filters, however, eliminate the bias.

Number of Pages in PDF File: 66

Keywords: Mutual fund incubation, investment management, bias in returns, fund flows, fund family

JEL Classification: G11, G20

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Date posted: March 27, 2008 ; Last revised: August 18, 2009

Suggested Citation

Evans, Richard B., Mutual Fund Incubation (March 21, 2009). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1005167

Contact Information

Richard B. Evans (Contact Author)
University of Virginia - Darden School of Business ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)
HOME PAGE: http://faculty.darden.virginia.edu/evansr/

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