Reputation Stretching in Mutual Fund Starts

Journal of Banking and Finance (2010), Vol 34, No. 1, pp. 193-207.

49 Pages Posted: 25 Mar 2008 Last revised: 13 Dec 2013

See all articles by Hsuan‐Chi Chen

Hsuan‐Chi Chen

University of New Mexico - Anderson School of Management

Christine W. Lai

Yuan Ze University

Date Written: July 15, 2009

Abstract

This study examines the role of reputation stretching in the context of mutual funds. We show that the reputation stretching strategy increases net fund inflows to new funds run by well-performing fund managers and yields a net increase of fund inflows to fund families. Reputable fund managers exhibit one-year performance persistence for managing new funds, which can help investors assess managers when selecting funds. We also find that the decrease in information asymmetry associated with managerial reputation benefits investors by leading to an increase in new fund returns in the short run, compared to those of new funds run by managers without track records. Overall, the reputation stretching strategy benefits both investors, by reducing information asymmetry and improving investment returns, and fund families, by increasing net fund inflows to new equity funds.

Keywords: Mutual fund; Fund family; Reputation stretching

JEL Classification: G11; G23

Suggested Citation

Chen, Hsuan-Chi and Lai, Christine W., Reputation Stretching in Mutual Fund Starts (July 15, 2009). Journal of Banking and Finance (2010), Vol 34, No. 1, pp. 193-207. . Available at SSRN: https://ssrn.com/abstract=1107128 or http://dx.doi.org/10.2139/ssrn.1107128

Hsuan-Chi Chen

University of New Mexico - Anderson School of Management ( email )

1924 Las Lomas NE
Albuquerque, NM 87131
United States

HOME PAGE: http://www.mgt.unm.edu/faculty/directoryArea.asp#FIN

Christine W. Lai (Contact Author)

Yuan Ze University ( email )

135, Far-East Rd., Chung-Li
Taoyuan, ROC
Taiwan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
14
Abstract Views
336
PlumX Metrics