Changing Names with Style: Mutual Fund Name Changes and Their Effects on Fund Flows

52 Pages Posted: 23 Jul 2003

See all articles by Michael J. Cooper

Michael J. Cooper

University of Utah - David Eccles School of Business

Huseyin Gulen

Purdue University - Krannert School of Management

P. Raghavendra Rau

University of Cambridge

Multiple version iconThere are 2 versions of this paper

Date Written: July 2004

Abstract

We investigate the effects of conditional name changes in the mutual fund industry. Specifically, we examine whether mutual funds change their names to take advantage of the current hot investment styles, and what effects these name changes have on the flows in and out of the funds, and to the funds' subsequent returns. We find that name changes tend to occur in waves; funds tend to change their names to be associated with the current high return style or to disassociate themselves from the current low return styles. The year before a fund changes its name to reflect a current hot style or moves away from a current cold style, the fund experiences an average excess outflow of approximately -5%. The year after the name change, these funds earn average cumulative excess flows of 30%, despite no increase in performance compared to their pre-name change performance. The increase in flows is similar across funds whose holdings match the style implied by their new name and those whose holdings do not, adding support to a growing body of literature suggesting that investors are irrationally influenced by cosmetic effects.

Keywords: Mutual funds, Fund flows, Behavioral finance, Name changes, Anomalies

Suggested Citation

Cooper, Michael J. and Gulen, Huseyin and Rau, P. Raghavendra, Changing Names with Style: Mutual Fund Name Changes and Their Effects on Fund Flows (July 2004). EFA 2003 Annual Conference Paper No. 293. Available at SSRN: https://ssrn.com/abstract=423989 or http://dx.doi.org/10.2139/ssrn.423989

Michael J. Cooper

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Huseyin Gulen

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

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