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

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