The Economic Consequences of Mutual Fund Advisory Misconduct

63 Pages Posted: 13 Nov 2017 Last revised: 20 Apr 2020

See all articles by Bing Liang

Bing Liang

University of Massachusetts Amherst - Department of Finance

Yuying Sun

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance

Date Written: April 16, 2020

Abstract

We evaluate the economic consequences of mutual fund advisory misconduct from 2000-2015. An average of 31.25% reduction in monthly fund flows occurs in one year after misconduct. The effect is more pronounced in funds facing strong investor monitoring, regulatory oversight, and misconduct sanctions. The manual classification of misconduct allegations and flow decomposition show that although all types of misconduct have negative effects on sentiment-driven flows, only disclosure-related misconduct has a negative effect on the flows driven by the fundamental value of funds. Overall, our study highlights the role of misconduct in affecting fund flows in the mutual fund industry.

Keywords: Advisory misconduct; Investor monitoring; Misconduct allegation; Flow decomposition

JEL Classification: G02, G23, G28

Suggested Citation

Liang, Bing and Sun, Yuying and Wu, Kai, The Economic Consequences of Mutual Fund Advisory Misconduct (April 16, 2020). Available at SSRN: https://ssrn.com/abstract=3061419 or http://dx.doi.org/10.2139/ssrn.3061419

Bing Liang

University of Massachusetts Amherst - Department of Finance ( email )

Amherst, MA 01003
United States

Yuying Sun

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science ( email )

Beijing
China

Kai Wu (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

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