Mutual Fund Flows and Cross-Fund Learning Within Families
Journal of Finance, Forthcoming
69 Pages Posted: 11 Oct 2010 Last revised: 30 Jul 2014
Date Written: July 29, 2014
We develop a model of performance evaluation and fund flows for mutual funds in a family. Family performance has two effects on the estimate of a member fund's skill and its inflows: a positive common-skill effect, and a negative correlated-noise effect. The overall spillover is either positive or negative, depending on the weight of common skill and correlation of noise in returns. Its absolute value increases with family size, and declines over time. The sensitivity of flows to a fund's own performance is affected accordingly. Empirical estimates of fund flow sensitivities show patterns consistent with rational cross-fund learning within families.
Keywords: Mutual Fund Family, Fund Flow, Performance Evaluation, Bayesian Learning
JEL Classification: G23, G11
Suggested Citation: Suggested Citation