When Mutual Fund Names Misinform

31 Pages Posted: 9 Jul 2020

See all articles by Anne-Florence Allard

Anne-Florence Allard

KU Leuven - Department of Accountancy, Finance and Insurance (AFI)

Nils Jonathan Krakow

University of Zurich - Department of Banking and Finance

Kristien Smedts

KU Leuven - Faculty of Economics and Business (FEB)

Date Written: June 16, 2020

Abstract

Mutual funds often inform directly about their strategy in their name. This paper studies the accuracy of mutual fund names. Constructing a fund name history data set based on SEC filings and applying unsupervised machine learning techniques, we document that a significant fraction of mutual funds features an inaccurate name, i.e. a name which is not aligned with their actual investment style. Funds that provide an inaccurate name experienced lower fund inflows before the inaccuracy, under-performed in the year before, and charged higher expenses. Strikingly, after featuring an inaccurate name, funds see a worse risk-return trade-off due to an increased idiosyncratic risk. Finally, we document that investors experience difficulties in responding to this misleading information while at the same time, they do not profit from this deviating behavior of the funds. Thus, our results highlight the importance of regulatory intervention in the name dimension.

Keywords: mutual funds, fund names, cluster analysis, fund performance

JEL Classification: G11, G14, G18

Suggested Citation

Allard, Anne-Florence and Krakow, Nils Jonathan and Smedts, Kristien, When Mutual Fund Names Misinform (June 16, 2020). Available at SSRN: https://ssrn.com/abstract=3628293 or http://dx.doi.org/10.2139/ssrn.3628293

Anne-Florence Allard (Contact Author)

KU Leuven - Department of Accountancy, Finance and Insurance (AFI) ( email )

Naamsestraat 69
Box 3525
Leuven, 3000
Belgium

Nils Jonathan Krakow

University of Zurich - Department of Banking and Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Kristien Smedts

KU Leuven - Faculty of Economics and Business (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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