The Importance of Family: The Role of Mutual Fund Family Reputation in Investment Decisions

Abstract

We examine the effect of investors’ prior experience with mutual fund families on their subsequent investment decisions. Using a sample from a large discount broker, we find that investors are significantly more likely to purchase funds from families with which they have previous experience. Our results are consistent with the influence of family-level reputation and robust to alternative explanations such as service quality, fee discounts, marketing, blind loyalty, or inertia. Further consistent with reputation theories, individuals' beliefs about more reputable families appear to change slowly. After experience-based purchases, investors earn higher returns even controlling for investor ability and within-family correlation.

Keywords: individual investor portfolio choice, mutual fund families, reputation

JEL Classification: L01, D83, G11, D14