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

51 Pages Posted: 15 Mar 2012 Last revised: 15 Jan 2015

William Christopher Gerken

University of Kentucky - Finance

Laura T. Starks

University of Texas at Austin - Department of Finance

Michael Yates

University of Texas at Austin - McCombs School of Busiiness

Date Written: December 20, 2014

Abstract

Based on theory, we hypothesize that fund family reputation affects individuals' mutual fund investment decisions and performance. In empirical tests of individual investor trades, we find supportive evidence of the hypothesis. Investors are significantly more likely to purchase funds from families with which they have previous experience, and particularly so if the previously experienced return was positive. Further consistent with theory, individuals' beliefs about more reputable families appear to change slowly. Moreover, the reputation effect appears to have positive outcomes - investors earn higher returns and risk-adjusted performance after reputation-based purchases even after controlling for investor ability and within-family correlation.

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

JEL Classification: L01, D83, G11, D14

Suggested Citation

Gerken, William Christopher and Starks, Laura T. and Yates, Michael, The Importance of Family: The Role of Mutual Fund Family Reputation in Investment Decisions (December 20, 2014). Available at SSRN: https://ssrn.com/abstract=2022503 or http://dx.doi.org/10.2139/ssrn.2022503

William Christopher Gerken (Contact Author)

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

Michael Yates

University of Texas at Austin - McCombs School of Busiiness ( email )

Austin, TX 78712
United States

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