Information Flows in Mutual Fund Families
65 Pages Posted: 17 Sep 2012 Last revised: 4 Dec 2014
Date Written: September 30, 2014
Abstract
Using a dataset of managers in fund families that offer affiliated funds of mutual funds (AFoMFs), I explore information flows in mutual fund families. I first show that AFoMFs allocate more capital to socially connected funds in the family. I then provide evidence that this investment behavior is information-driven. AFoMF managers increase (decrease) connected fund holdings that subsequently provide positive (negative) abnormal returns, thereby utilizing social connections to extract private information. Finally, I show that, in return for information sharing, AFoMF managers provide liquidity subsidization to connected, distressed funds, suggesting that an implicit contract equilibrium may exist.
Keywords: mutual fund family, fund of funds, social connections, information flows
JEL Classification: G23
Suggested Citation: Suggested Citation