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Mutual Fund Flows and Cross-Fund Learning Within Families

Journal of Finance, Forthcoming

69 Pages Posted: 11 Oct 2010 Last revised: 30 Jul 2014

David P. Brown

University of Wisconsin - Madison - Department of Finance, Investment and Banking

Youchang Wu

University of Oregon - Lundquist College of Business

Date Written: July 29, 2014

Abstract

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

Brown, David P. and Wu, Youchang, Mutual Fund Flows and Cross-Fund Learning Within Families (July 29, 2014). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1690539 or http://dx.doi.org/10.2139/ssrn.1690539

David P. Brown

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-265-5281 (Phone)
608-265-4195 (Fax)

Youchang Wu (Contact Author)

University of Oregon - Lundquist College of Business ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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