Leaving the (fund) gate ajar: investor protection or marketing ploy?

83 Pages Posted: 12 Jul 2021 Last revised: 7 Aug 2021

See all articles by Cecilia Wei Hu

Cecilia Wei Hu

Deakin University

Peter Lam

University of Technology, Sydney - Discipline of Accounting; Financial Research Network (FIRN)

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate)

Date Written: July 10, 2021

Abstract

Using a sample of equity funds in China, we explore for the first time mutual funds that impose discretionary inflow restrictions (gates) on investors. Contrary to managers’ claim, we find no clear evidence that inflow gates protect investor interests. Despite their superior past performance, inflow-restricted funds’ subsequent returns decline dramatically. In addition, funds tilt toward a riskier investment strategy and deliver a negative risk-adjusted return when the gate is in place. Our analyses further reveal that, after announcing purchase limits on fund assets, funds attract extra flows and more retail investors. This is consistent with the scarcity principle in marketing. Overall, we suggest that leaving the fund gate ajar to investors appears to be more of a marketing ploy than a form of investor protection.

Keywords: mutual funds, inflow gate, fund flow restriction, scarcity marketing, retail investors, emerging fund market

JEL Classification: G11, G23

Suggested Citation

Hu, Wei and Lam, Peter and Lee, Adrian D., Leaving the (fund) gate ajar: investor protection or marketing ploy? (July 10, 2021). Available at SSRN: https://ssrn.com/abstract=3883985 or http://dx.doi.org/10.2139/ssrn.3883985

Wei Hu

Deakin University

221 Burwood Hwy, Burwood
Victoria, Victoria 3125
Australia

Peter Lam

University of Technology, Sydney - Discipline of Accounting ( email )

P.O. Box 123 Broadway
Sydney, NSW 2007
Australia
02 9514 3926 (Phone)
02 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Adrian D. Lee (Contact Author)

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

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