Spillover Effects of Marketing in Mutual Fund Families

44 Pages Posted: 25 Jan 2007 Last revised: 8 Jun 2010

Marno Verbeek

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar

Joop Huij

Erasmus University - Rotterdam School of Management; Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

Date Written: February 26, 2007

Abstract

This paper investigates the presence of spillover effects of marketing in mutual fund families. We find that funds with high marketing expenses generate spillovers, and enhance cash inflows to family members with low marketing expenses. In particular, low-marketing funds that are operated by a family with high marketing expenses have substantially larger inflows after positive returns than otherwise similar funds that are operated by a family with low marketing expenses, while they have smaller outflows after negative returns. One way to interpret the spillovers is that they are a by-product of individual fund marketing whereby the entire family is made more visible to investors. An alternative explanation of this observation is that funds with low marketing expenses are directly subsidized by family members with high marketing expenses. We develop and perform a set of tests to evaluate these two alternative hypotheses. The results of all tests support the subsidization hypothesis, and suggest that at least part of the spillovers can be attributed to favoritism. These results suggest that conflicts of interest between investors and fund families have been exacerbated by competition in the mutual fund industry.

Keywords: Mutual fund flows, marketing, cross-subsidization, favoritism

Suggested Citation

Verbeek, Marno and Huij, Joop, Spillover Effects of Marketing in Mutual Fund Families (February 26, 2007). ERIM Report Series; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=958784 or http://dx.doi.org/10.2139/ssrn.958784

Marno Verbeek

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)

HOME PAGE: http://www.rsm.nl/mverbeek

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Joop Huij (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.rsm.nl/jhuij

Robeco Quantitative Strategies

Rotterdam, 3011 AG
Netherlands

HOME PAGE: http://www.robeco.com/quant

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