Mutual Fund Family Size and Mutual Fund Performance: The Role of Regulatory Changes

Journal of Accounting Research, Forthcoming

Johnson School Research Paper Series No. 55-2011

49 Pages Posted: 4 Oct 2011 Last revised: 11 Jun 2014

See all articles by Sanjeev Bhojraj

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management

Young Jun Cho

Singapore Management University - School of Accountancy

Nir Yehuda

University of Delaware - Accounting & MIS

Date Written: October 2, 2011

Abstract

We examine whether the previously documented positive association between fund family size and fund performance is affected by significant regulatory changes (i.e., Regulation FD, the Global Settlement (GS), and increased scrutiny as a result of trading scandals) that have occurred in the last decade. Using Regulation Fair Disclosure (Reg FD) as a beginning point for these structural changes, we find that while fund family size was positively associated with fund performance in the period prior to the regulatory changes, this advantage is significantly weaker in the period subsequent to the regulatory changes. Consistent with the weakened advantage of fund family size in fund performance, we find that the greater stock picking skill of larger fund families, measured using the earnings announcement returns of the stocks they trade, also weakened subsequent to the regulatory changes. Using narrower event windows around the regulatory changes, we find that the previously documented superior return of large fund families was partly attributable to selective disclosure. We also find that fund families implicated in the trading scandals experienced a decline in their performance during the scandal period. Finally, we examine the role of large investment banks in providing an advantage to large fund families. Family size was positively associated with the extent to which funds traded in the same direction as forecast revisions by analysts from large investment banks in the period prior to Reg FD and the GS and this association declined significantly after the two regulatory events.

Keywords: Mutual funds, Reg FD, Global Settlement, Late Trading, Market Timing, Selective disclosure

JEL Classification: G14,G20, G23, M41, G18

Suggested Citation

Bhojraj, Sanjeev and Cho, Young Jun and Yehuda, Nir, Mutual Fund Family Size and Mutual Fund Performance: The Role of Regulatory Changes (October 2, 2011). Journal of Accounting Research, Forthcoming, Johnson School Research Paper Series No. 55-2011, Available at SSRN: https://ssrn.com/abstract=1937197

Sanjeev Bhojraj (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Accounting
Ithaca, NY 14853
United States
607-255-4069 (Phone)
607-254-4590 (Fax)

Young Jun Cho

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore

Nir Yehuda

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

HOME PAGE: http://https://lerner.udel.edu/faculty-staff-directory/nir-yehuda/

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