What is in a Name? Mutual Fund Flows When Managers Have Foreign Sounding Names

Abstract

This paper examines whether stereotypes associated with a person's name affect the investment choices of mutual fund investors. Our key conjecture is that funds would have lower inflows and greater flow-performance sensitivity when fund managers have foreign-sounding names. Consistent with our conjecture, we find that perceived foreignness of fund managers' names influence fund flows even though managers with foreign-sounding names do not follow unique investment styles or have inferior investment skill. Specifically, fund managers with foreign-sounding names have lower fund flows relative to managers with non-foreign-sounding names. Further, those managers experience lower appreciation in flows following good performance and greater decline in flows following poor performance. These effects are stronger for funds that have more conservative investor clienteles or are located in regions where racial/ethnic stereotypes are more pronounced. In economic terms, managers with foreign-sounding names can incur an annual cost of $143,000, although this cost can be as high as $600,000. Collectively, our results show that social biases can affect capital allocations even in one of the largest and most liquid capital market segments.

Keywords: Mutual Funds, Discrimination, Investor Behavior