IPO Allocations and New Mutual Funds

Posted: 4 Feb 2017 Last revised: 25 Jun 2019

See all articles by Frankie Chau

Frankie Chau

Durham University Business School

Yi Gu

Durham University

Christodoulos Louca

Cyprus University of Technology

Date Written: February 1, 2017

Abstract

Using an event time approach, we find that mutual funds outperform during the 6- month period after inception. This result is not driven by incubation bias; rather new fund outperformance concentrates among funds with access to initial public offerings (IPOs), especially to more underpriced IPOs. Favoritism among fund families, partly explains access to IPOs. Finally, funds with access to IPOs that signal preferential access to future IPOs display greater investment flow, even after controlling for performance. Overall, the evidence suggests that fund families strategically exploit access to IPO allocations to open new mutual funds that demonstrate strong investment performance and attract greater investment flow.

Keywords: Mutual Fund, Fund Performance, Initial Public Offering, IPO Allocation

JEL Classification: G11

Suggested Citation

Chau, Frankie and Gu, Yi and Louca, Christodoulos, IPO Allocations and New Mutual Funds (February 1, 2017). Available at SSRN: https://ssrn.com/abstract=2910589 or http://dx.doi.org/10.2139/ssrn.2910589

Frankie Chau

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Yi Gu (Contact Author)

Durham University ( email )

Durham University Business School
Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Christodoulos Louca

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

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