What's Trending? The Performance and Motivations for Mutual Fund Startups

49 Pages Posted: 21 Aug 2016

See all articles by Jason T. Greene

Jason T. Greene

The University of Alabama in Huntsville

Jeffrey Stark

Middle Tennessee State University

Date Written: August 19, 2016

Abstract

We examine how the motivation behind the launch of a mutual fund is associated with the fund's subsequent performance. We find that mutual funds have incentives to cater to investor sentiment to attract assets under management by launching trendy mutual funds. The incentives to launch trendy funds exist regardless of whether the fund sponsor is skilled or expects future outperformance. Newly launched trendy funds generate significant additional inflows in their first twelve months, yet underperform over their first five years compared to non-trendy funds. Our results suggest that mutual fund launches appear to be motivated by considerations other than skill.

Keywords: Mutual Funds, Startup Mutual Funds, Mutual Fund Flows, Performance

JEL Classification: G11, G12, G20, G23

Suggested Citation

Greene, Jason T. and Stark, Jeffrey, What's Trending? The Performance and Motivations for Mutual Fund Startups (August 19, 2016). Available at SSRN: https://ssrn.com/abstract=2826677 or http://dx.doi.org/10.2139/ssrn.2826677

Jason T. Greene

The University of Alabama in Huntsville ( email )

301 Sparkman Drive
Huntsville, AL 35899
United States
256-824-4424 (Phone)

HOME PAGE: http://www.uah.edu/business

Jeffrey Stark (Contact Author)

Middle Tennessee State University ( email )

Murfreesboro, TN
United States

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